Market report: Impasse over Iran sends oil price sharply higher
Susannah Streeter, chief investment strategist, Wealth Club: ”With the Strait of Hormuz still at a standstill and the blockade impeding fresh talks between Iran and the US, the prospect of a serious energy crunch is causing fresh jitters.
The benchmark, Brent Crude has jumped to trade around $103 a barrel, reflecting concern about the lack of prospects for shipments from the region to resume any time soon. Renewed attacks on tankers have heightened concerns about just how complex this situation will be to resolve. The FTSE 100 has opened lower in early trade as investors turn skittish again about the effects on supply chains, input costs and demand in key markets. European indices are sharply lower, following falls in Asia and Wall Street looks set for a stumble in early trade.
The war has thrown up clouds of uncertainty for J Sainsbury, as cost pressures threaten to mount and shoppers become more cautious. It’s the latest retailer to warn about an unpredictable outlook, and so it’s adjusted its guidance on profits for the year. It previously estimated underlying operating profits would come in around £1bn or more and now that’s changed to between £975m and £1.075bn. The update unnerved investors with J Sainsbury one of the biggest fallers in early trade.
Its decision to allocate more space to food seems a shrewd move in the current climate, given that spending on non-essential items is already showing signs of weakening. Clothing sales were already dented in the second half by unhelpful weather patterns, and with customers tightening their belts, there’s likely to be fewer wardrobe updates for this summer. Marketing drives to demonstrate value for money are likely to increase in the supermarket sector, with competition set to mount. Although for now sharp food price rises have been avoided, with fertiliser shipments blocked from the Middle East there are concerns that shopping baskets will become pricier and a hunt for bargains is set to intensify.
The latest snapshot of the UK public finances is encouraging but scratch below the surface and the picture still remains fragile. Borrowing for March came in £1.4bn lower than a year earlier and the lowest for the month since 2022. Given that it indicates some more stabilisation in the government finances, helped by a stronger-than-expected inflow of revenues, it will come as welcome relief for chancellor Rachel Reeves.
However, much of this money flowing in is due to the bigger tax take, a burden shouldered particularly by businesses. The £3.5bn surge in compulsory social contributions, driven by higher employer National Insurance contributions, is doing much of the heavy lifting. While this boosts Treasury coffers in the near term, it piles additional pressure onto employers already facing elevated costs, especially at a time when energy costs are escalating.
Broader tax receipts are also rising, with gains in income tax, corporation tax and VAT pushing revenues up by £1.7bn. But government spending continues to climb, with amount the departmental is shelling out up £2.9bn as pay rises and inflation feed through into everyday costs. Welfare spending has also increased, driven by inflation-linked benefits and higher state pension payments.
Debt interest payments dipped by £1.3bn, but given the more volatile bond markets due to the Iran war, this could be short-lived. There’s still a precarious balancing act underway and the concern will be that without tighter rein on the public finances, this improvement could reverse, especially if the Middle East conflict acts as a big drag on growth.
Given the headlines of unruly markets and a highly uncertain global outlook, the UK government’s campaign to try and boost participation in stock markets may not on the face of it, look timely. However, with an estimated £430bn sitting in cash that could potentially be invested, even a modest shift in behaviour could have significant repercussions. The idea is to break the dam holding back this vast pool of under-utilised wealth and see it flow into investments, helping to build individual financial resilience and work harder for the wider economy.
Many people worry about the risks of investing, but leaving money stagnating in accounts earning paltry amounts of interest is also a risk given that inflation quietly eats away at cash balances. While savings have struggled to keep pace with rising prices, long-term investing has historically offered a way to grow wealth and preserve purchasing power. Yet despite this, a significant proportion of savers remain hesitant to take the plunge into the stock market.
A bold investment culture has been slow to emerge partly because a significant confidence gap has built up. The barriers to investing are often less about access and more about understanding and perception. There is a lack of familiarity with product names such as the Stocks and Shares ISA, and recent tinkering with limits for tax-free ISA wrappers has added to the confusion.
Many potential investors often say they don’t know where to start, how to compare products, or what is right for them. This is where a government-backed campaign could make a big difference. By improving awareness, simplifying choices, and offering more accessible tools and guidance, it has the potential to unlock engagement from millions who are currently sitting on the sidelines.”