London close: Stocks mixed as investors mull longer Hormuz blockade

(Sharecast News) - London stocks ended mixed on Friday as investors weighed ongoing concerns about the Strait of Hormuz blockade against resilient domestic data, after the Bank of England warned that inflation could breach 6% next year in a worst-case scenario linked to higher oil prices.

The FTSE 100 slipped 0.14% to 10,363.93, while the FTSE 250 rose 0.3% to 22,531.61.

Oil prices retreated, with Brent crude futures last down 1.87% on ICE at $108.34 per barrel, and the NYMEX quote for West Texas Intermediate 2.59% lower at $102.35.

Axel Rudolph, chief technical analyst at IG, said: "The FTSE 100 has given back some of its April gains as UK yields remain close to multi-year highs following this week's BoE hawkish hold but on the other side of the Atlantic the S&P 500 and Nasdaq 100 hit new records."

Patrick Munnelly, market strategy partner at TickMill, noted that "London's FTSE 100 ended almost flat on Friday; the muted close masked a stronger weekly performance as investors balanced recent gains against weaker miners and lingering macro risk.

"The FTSE 250 edged up, suggesting slightly better appetite for mid-caps, but the broader tone remained cautious rather than outright bullish.

"After Thursday's Bank of England hold, markets appeared to settle into a wait-and-see mode - the policy shock was avoided, but the inflation risk from elevated energy prices and Middle East tensions remains unresolved."

The Bank of England voted eight to one on Thursday to leave interest rates unchanged at 3.75%, as expected, but cautioned that further hikes would probably be needed later this year as higher inflation was "unavoidable" because of the Iran war.

In a worst-case scenario where oil rises above $130 a barrel and stays elevated, the Bank said inflation could peak at more than 6% at the start of next year.

"The FTSE 100 took a slight hit on the first day of May as its European peers were shut for Labour Day and as the 10-year gilt yield traded around 5% - at 2008 levels - and the 30-year yield retreated from this week's 5.74% peak, a level not seen since 1998," Rudolph said.

"The surge followed the BoE MPC's 8-1 vote to hold the Bank Rate at 3.75% with governor Andrew Bailey describing the decision as an 'active hold', stressing the need to assess whether the energy-driven price shock proves persistent against a backdrop of weakening economic conditions.

"In other news UK house price growth hit an 11-month high and mortgage approvals rose more than expected."

Manufacturing growth reaches near four-year high

In economic news, UK manufacturing growth hit a near four-year high in April, although the improvement came alongside renewed supply chain and inflation pressures.

The S&P Global manufacturing purchasing managers' index rose to 53.7 from 51.0 in March, ahead of the flash estimate of 53.6 and marking a sixth consecutive month above the 50 threshold separating growth from contraction.

Rob Dobson, director at S&P Global Market Intelligence, said April had seen the sector recover after being hit by the Middle East war in March, with output and new orders strengthening and staffing levels rising for the first time in 18 months.

"The upturn comes with several catches, however," he said.

"Restrictions on transit through the Strait of Hormuz are causing substantial disruptions to input deliveries, with supplier lead times lengthening to the greatest extent in almost four years.

"The resulting material shortages are exerting steep pressure on purchasing costs."

Mortgage approvals meanwhile unexpectedly rose in March, according to the Bank of England's Money and Credit report.

Approvals increased to 63,500 from 62,700 in February, beating expectations for a fall to 60,000 and coming in above the six-month average of 63,200.

Net mortgage borrowing rose to �6.2bn from �5.2bn, while the effective interest rate on newly drawn mortgages eased to 4.03% from 4.10%.

Consumer credit borrowing edged down to �1.9bn from �2bn, with credit card borrowing unchanged at �0.7bn and other consumer credit falling to �1.2bn from �1.3bn.

Household deposits with banks and building societies rose by �5.5bn, driven by �4.4bn of additional ISA deposits and �3bn into interest-bearing sight deposit accounts.

House prices also rose unexpectedly in April, according to Nationwide, despite weaker consumer confidence following the escalation in the Middle East.

Prices increased 0.4% on the month after a 0.9% rise in March, beating expectations for a 0.3% fall.

On the year, prices were up 3%, compared with 2.2% growth a month earlier, while the average UK home price rose to �278,880 from �277,186.

Nationwide chief economist Robert Gardner said the continued recovery was "somewhat surprising" given weaker confidence indicators and a deterioration in housing market sentiment.

He said the market was likely being supported by the "relative strength" of household finances.

NatWest in the red, Pearson rises

In equity markets, NatWest Group fell 4.18% despite saying it now expected annual income excluding notable items to be at the top end of its �17.2bn to �17.6bn guidance range.

The bank reported first-quarter operating pre-tax profit of �2bn, up from �1.8bn a year earlier and ahead of expectations of �1.94bn.

"NatWest, like other UK banks, has been the gift that kept on giving over the last two years, but now with the shares trading at such an elevated level results like today aren't enough to drive further upside," commented Chris Beauchamp, chief market analyst at IG.

"While the figures are in line with Lloyds', the outlook is now tied to the broader UK economy, and on this front the picture seems set to get worse before it gets better, particularly if the doom-laden 'Scenario C' outlined by Andrew Bailey yesterday comes to pass."

AstraZeneca lost 2.48% after an advisory panel for the US Food and Drug Administration rejected its experimental breast cancer treatment.

Mining stocks were also under pressure as copper prices retreated.

"The main drag came from mining stocks, which softened as copper prices retreated, easing some of the pressure on the commodity trade that had supported London earlier in the week," Munnelly said.

"That mattered because the FTSE 100's recent resilience has leaned heavily on hard-asset exposure - oil, metals and global cyclicals - rather than confidence in the UK domestic economy.

"With copper easing, investors had less reason to chase miners after their recent outperformance, while energy remained underpinned by geopolitical risk but no longer delivered enough upside to pull the whole index meaningfully higher."

On the upside, Pearson gained 3.1% after the education publisher said it remained on track to meet 2026 guidance, reporting a 4% rise in first-quarter revenues and an "encouraging" start to the year.

Diageo edged up 0.35% after Donald Trump said he would remove all tariffs and restrictions on whisky imports following King Charles' visit to the US.

Reporting by Josh White for Sharecast.com.