(Sharecast News) - London stocks were still weaker by midday on Friday amid ongoing concerns about the Strait of Hormuz blockade, and after the Bank of England warned that inflation could breach 6% next year in a worst-case scenario.
The FTSE 100 was down 0.5% at 10,323.11, while Brent crude was up 0.7%% at $111.17 a barrel.
The BoE voted eight to one to keep rates on hold at 3.75% on Thursday, as expected, but it also cautioned that more hikes will likely be needed later in the year as higher inflation is "unavoidable" due to the Iran war.
In a worst-case scenario where the price of oil rises above $130 a barrel and remains high for a prolonged period, inflation could peak at over 6% at the start of next year, it said.
Russ Mould, investment director at AJ Bell, said: "The FTSE 100 took a step back on Friday on a mix of continuing concern about the situation in the Middle East, profit taking in the utilities sector and weakness among precious metals miners.
"The latest US earnings season has been robust, which has helped prevent global markets from suffering big losses despite the impact of the Iran conflict. US futures are pointing to another strong showing when trading resumes on Wall Street later.
"But oil prices remaining above $110 per barrel are a reminder of the stakes for the global economy and the fact that there looks to be no path to the Strait of Hormuz reopening in the near term."
On home shores, figures from Nationwide showed that house prices unexpectedly rose in April despite consumer confidence taking a hit from the Iran war.
House prices ticked up 0.4% on the month following a 0.9% jump in March, beating expectations for a 0.3% fall. On the year, prices were 3% higher in April following a 2.2% gain the month before.
The average price of a home stood at 278,880, up from 277,186.
Nationwide chief economist Robert Gardner said: "Despite the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices, the UK housing market has continued to regain momentum following the slowdown recorded around the turn of the year."
Gardner said the market was likely being supported by the "relative strength" of household finances.
Investors were also mulling a survey showing that manufacturing growth hit a near four-year high in April, while input price inflation was also at a near four-year high as supply chain pressures build.
The S&P Global manufacturing purchasing managers' index rose to 53.7, its best level since May 2022, from 51.0 in March. It was also a touch higher than the flash estimate of 53.6.
The index was above the 50.0 mark that separates contraction from expansion for the sixth month in a row.
The survey also showed that supply chain and price pressures continued to grow, however, as disruptions, delays and the conflict in the Middle East took their toll.
Rob Dobson, director at S&P Global Market Intelligence, said: "April saw the growth rate of the UK manufacturing sector recover after being hit by the impacts of the war in the Middle East during March. The headline PMI rose to a near four-year high, as the trends in output and new orders strengthened. Staffing levels were also increased for the first time in 18 months.
"The upturn comes with several catches, however. 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. Input prices rose at one of the fastest rates in the 34-year survey history, and at a pace rarely exceeded outside of the pandemic-related inflationary surge of 2021-22.
"It should also be noted that the gain in production is partly the result of clients bringing forward purchases to mitigate expected price uplifts and supply disruptions. As this process unwinds later in the year, alongside declining business optimism, growth in the sector could cool while inflationary pressures remain on high heat."
Separately, data from the Bank of England showed that mortgage approvals unexpectedly rose in March.
The latest Money and Credit report showed that mortgage approvals rose to 63,500 from 62,700 in February, beating expectations for a decline to 60,000. It was also above the six-month average of 63,200.
In equity markets, NatWest was under the cosh despite saying it expects annual earnings to be at the upper end of guidance after posting a 12% jump in first-quarter profits.
The bank now expects income excluding notable items to be at the top end of its range of 17.2 -17.6bn. Operating pre-tax profit for the three months to 31 March came in at 2bn compared with 1.8bn a year earlier and better than expectations of 1.94bn.
Chris Beauchamp, chief market analyst at IG, said: "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.
"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 fell after its experimental breast cancer treatment was given the thumbs down by an advisory panel for the US Food and Drug Administration.
On the upside, educational publisher Pearson rallied after saying it was on track to deliver its 2026 guidance as it reported a 4% jump in first-quarter revenues and hailed an "encouraging" start to the year.
Drinks maker Diageo fizzed higher after Donald Trump said he will remove all tariffs and restrictions on whisky imports following King Charles' visit to the US.
49.31 (0.48%)
162.12
0.00