London open: Stocks fall amid inflation worries

(Sharecast News) - London stocks fell in early trade on Friday as investors continued to mull developments in the Middle East conflict and as worries about inflation dented sentiment after the Bank of England warned it could hit 6.2% next year in a worst-case scenario.

At 0840 BST, the FTSE 100 was down 0.5% at 10,327.39, while Brent crude was up 0.2% at $110.63 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 were likely to 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.

As far as Middle East events are concerned, Ipek Ozkardeskaya, senior analyst at Swissquote, pointed out that another month has ended "with no light at the end of the tunnel".

"On the contrary, the US is not willing to lift the naval blockade in the Strait of Hormuz, while Iran says it will not give up its nuclear programme and will not come to the negotiating table unless the US lifts the blockade," she said. "We're repeating the same lines every day.

"Meanwhile, the near-closure of the Strait of Hormuz keeps the oil market tight. Trump downplays rising oil prices, arguing that there is plenty of oil - but blocked in the Strait - and that prices will fall like a rock once the issues are resolved. But when will that be? No one knows."

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.

"This is somewhat surprising given that indicators of consumer confidence have weakened noticeably. GfK's headline index has fallen to its lowest level since late2023, reflecting households' more pessimistic views of the economic outlook and their own financial position over the year ahead.

"Measures of housing market sentiment have also deteriorated. The Royal Institution of Chartered Surveyors reported a sharp fall in new buyer enquiries in March, taking the index to its weakest reading since 2023. This softening is likely to have been influenced by higher market interest rates following the onset of the conflict, alongside a more uncertain backdrop."

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

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."

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.