London's FTSE 100 closed 0.68% lower on Monday after the US and Iran exchanged fresh strikes over the weekend, while Britain's manufacturing activity accelerated to a four-year high on conflict-driven stockpiling.
The US Central Command said it "conducted self-defense strikes" on Iranian radar and command and control sites in response to "aggressive Iranian actions," while Iran's Islamic Revolutionary Guard Corps said it launched a retaliatory attack against an air base used by US forces. Iranian negotiators also plan to suspend talks with their US counterparts in protest of Israeli aggression in Lebanon, Bloomberg News reported, citing a statement carried by the semi-official Tasnim news agency.
Back home and on the economic front, the final S&P Global UK Manufacturing PMI stood at 53.9 in May, against the prior month's 53.7. The seventh consecutive growth came as production volumes expanded at the fastest rate in three months despite persistent headwinds, including rising prices and supply chain pressures.
"The sustainability of the upturn remains in doubt, however. The recent upturn in new order intakes that is driving the expansion in output is heavily reliant on both manufacturers and their clients front-loading purchases to mitigate expected war-related price increases and supply chain disruption. This bounce will fade once customers have built up sufficient safety stocks," S&P Global Market Intelligence director Rob Dobson said.
Meanwhile, the annual growth rate of house prices in the UK slowed to 1.7% in May from 3% earlier, according to data from the Nationwide Building Society. The average price of houses was 278,024 pounds sterling, down from 278,880 pounds a month ago.
"Given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market interest rates, some loss of momentum was to be expected. Indeed, consumer confidence has weakened noticeably since the start of the conflict, with GfK's headline index falling to its lowest level since late‑2023 in April, with only a marginal increase in May," Nationwide Chief Economist Robert Gardner said.
"The housing market has not fallen off a cliff, but it is clearly looking over the edge," RBC Capital Markets said. "The good news, and there is some, is that the UK entered this shock in reasonable shape: household debt is at a two-decade low relative to income, the economy grew a healthy 0.6% in Q1, and mortgage rates, while rising, are still well below the 2023 peaks. We would not yet call this the beginning of a sustained downturn. UK house prices may have hit the brakes in May, but the engine has not yet stalled."
In corporate news, easyJet (EZJ.L) signaled that its board will gauge a takeover offer from US-based Castlelake after the alternative investment firm disclosed that it is in the early stages of evaluating a potential bid for the British budget airline. The company, which is yet to receive a buyout proposal from or hold any discussions with Castlelake, traded 10.03% higher at close.