The FTSE 100 looked set to open higher on Friday as investors cautiously welcomed signs of possible progress in Middle East peace negotiations, despite mounting concerns over Britain’s weakening consumer economy and renewed rises in oil prices.
Market sentiment was supported by hopes that diplomatic efforts in the Middle East could still prevent a wider regional escalation, although optimism remained fragile after fresh tensions over Iran’s uranium stockpiles pushed energy prices higher once again.
Brent Crude climbed amid fears that negotiations could stall, reigniting concerns over inflation and global energy costs.
The renewed rise in oil prices comes at a sensitive moment for the British economy, with fresh data pointing to continued pressure on consumers and retailers.
Official figures showed UK retail sales volumes fell by 1.3pc in April after a modest 0.6pc rise in March, in line with economists’ expectations.
The decline was compounded by downward revisions to both February and March figures, suggesting consumer spending conditions have been weaker than previously thought.
Fuel sales were among the sharpest drags on activity, with some retailers reporting motorists were cutting back on journeys and attempting to conserve fuel amid ongoing cost pressures.
The weakness followed unusually strong fuel sales in March when drivers reportedly filled up ahead of anticipated price rises.
Separate surveys also showed consumer confidence improved only marginally in May and remained subdued overall, underlining continued caution among households despite easing inflation and recent interest rate cuts.
Analysts said the figures highlighted the fragile balance facing policymakers and investors, with softer consumer demand colliding with renewed geopolitical risks that threaten to push energy prices higher again.
The combination raises concerns that inflationary pressures could remain more persistent than hoped, potentially complicating the outlook for future Bank of England rate cuts.
Nevertheless, traders appeared encouraged by the absence of a major escalation in the Middle East overnight, helping to support equity markets at the start of trading.
Energy and commodity-linked stocks were expected to benefit from firmer crude prices, while retailers may remain under pressure following the disappointing sales data.
Economists warned that Britain’s economic recovery still appears heavily dependent on fragile consumer confidence at a time when households remain highly sensitive to energy costs, borrowing rates and geopolitical uncertainty.
Susannah Streeter, chief investment strategist, Wealth Club said: “Hopes for a resolution to the Middle East crisis continue to ebb and flow, but there remains cautious optimism at the end of the week, with the FTSE set to step into positive territory.
There’s been a re-evaluation of where interest rates could end up, with expectations for fewer hikes gaining ground, which has helped lift sentiment. Plus, talk of big stock market launches for SpaceX and rumours of an OpenAI listing have fanned the flames of tech enthusiasm once again.
“Even so, the energy crunch is still taking a toll on shoppers, and patterns of erratic behaviour are emerging. Overall retail sales fell by 1.3% as worries about the repercussions of the Middle East crisis collided with stormy conditions early in the month. It was a very challenging time for department stores – which experienced a 10.1% sales slump. The month was also frustrating for clothing and shoe retailers, with sales down 4.6% on the month. Style upgrades clearly took a back seat as the weather and the geopolitical climate stayed so uncertain.
Pumps on forecourts were quieter, which is likely to be a combination of people reducing journeys, but also using fuel stocked up during a bout of panic buying in March. The snapshot of sales for the sector was also downgraded in both March and February indicating a weaker environment for retailers even before bill hikes hit. It doesn’t look like the difficult situation will improve any time soon. Confidence remains fragile going into May, and appetite to spend on big-ticket items has weakened. However, there are some signs the mood is a little less downbeat heading into late spring. As fears of fuel shortages have dissipated, there’s some sense that we are out of the immediate danger zone of rationing. So, there’s been a tentative improvement in the closely watched GfK index, though it remains deep in negative territory, rising to -23 in May from -25 in April. Many households, though, have been forced to dip into cash stashes to deal with rising prices, with the savings gauge plunging. Emergency pots will only last so long, and once more bills start to rise, there could be a fresh tightening of spending ahead.
Unfortunately, there’s not much significant movement so far in terms of energy costs. Oil prices are pushing higher again, with Brent crude edging above $105 a barrel as tensions around Iran’s nuclear negotiations continue to simmer. Comments from Iran’s Supreme Leader insisting enriched uranium stockpiles remain in the country have complicated hopes for a breakthrough deal, while proposals linked to tolls in the Strait of Hormuz are adding another layer of geopolitical uncertainty. Even so, crude remains lower over the week amid lingering optimism that diplomacy could prompt a breakthrough.
So, the FTSE 100 looks set to end the week on the front foot, with modest gains set to ripple through the index following a strong session in Asia. Japan’s Nikkei surged on renewed AI enthusiasm, with SoftBank soaring after reports that OpenAI and SB Energy, two of its key investments, are moving closer to US listings. The rally has added to optimism surrounding technology stocks, helping lift sentiment across Asian markets. A mood of cautious optimism is expected to end the week, but sentiment can turn very quickly, so stocks are set to remain volatile.”
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