BUSINESS & MARKETS LIVE: FTSE 100 closes back above 10,000 as oil price eases

The worrying inflation figures are just the latest to betray just how fragile the UK economy was as war in the Middle East erupted, writes Hugo Duncan.

Inflation on the CPI measure already stood at a punishing 3 per cent in February – before the conflict sent oil and gas prices soaring and fuelled fears of a fresh cost-of-living shock.

And inflation is far from the Chancellor’s only headache.

The FTSE is up more than 1.33 per cent to near 10,100 points and is on course for its biggest increase for more than two weeks.

Brent crude is back at $100 a barrel.

Businesses have been dealt another blow as forecasts suggest energy bills could soar by up to 80 per cent.

Energy consultancy Cornwall Insight said electricity bills for businesses have increased by between 10 and 30 per cent since the start of the war. Gas prices have seen steeper increases of between 25 and 80 per cent.

An average 12-month electricity contract for a small commercial business would now cost an average £578,000. For gas, bills have reached just over £1.02million a year, a 60 per cent increase.

Cornwall Insight’s Jacob Briggs said: ‘For some firms, this could mean the difference between investing in growth this year or shelving their plans entirely, and for others, high bills could force some very difficult economic decisions.

‘There is no real safety net for businesses when the wholesale market spikes. Households at least have the price cap to slow the impact; many businesses face the market as it stands today.’

After Bank of England chief economist Huw Pill yesterday insisted ‘the fog of uncertainty’ should not stop it raising interest rates, it was the turn of European Central Bank chief Christine Lagarde to make her thoughts clear today.

And it doesn’t make great reading for those hoping central banks will steer away from rate hikes.

‘We will not be paralysed by hesitation,’ says Lagarde.

Speaking in Frankfurt, she adds: ‘If the shock gives rise to a large though not-too-persistent overshoot of our target, some measured adjustment of policy could be warranted.

‘To leave such an overshoot entirely unaddressed could pose a communication risk: the public may find it difficult to understand a reaction function that does not react.’

And she goes on: ‘If we expect inflation to deviate significantly and persistently from target, the response must be appropriately forceful or persistent. Otherwise, self-reinforcing mechanisms would kick in and the risk of de-anchoring would become acute.’

The Institute for Grocery says food inflation could hit 8 per cent by the summer – piling pressure on family budgets.

The boss of Morrisons acknowledges that his customers are finding it tough going.

‘We know it’s tough for customers right now and we’re doing everything we can to offer them better value and give them more reasons to shop at Morrisons,’ says chief executive Rami Baitiéh.

‘We are watching current international events closely, alert to the impacts on consumer confidence and supply chains, and we will continue to do what we can to mitigate effects on our customers.’

The FTSE 100 is back above 10,000 after the Iran war wiped out all of its gains last week.

The index is up 1.07 per cent to 10,072, led by banks and miners.

Oil prices are down 5 per cent to $98 but remain volatile as potential peace talks are offset by ongoing Iranian strikes at US military bases.

The housing market appeared to be slowing before conflict in the Middle East erupted, according to figures from the Office for National Statistics.

The price of typical home was £268,000 in January – just 1.3 per cent higher than a year earlier.

That was the smallest increase since September 2024.

It’s not just Britain feeling the pain.

German business morale tumbled in March as the Iran war battered companies across Europe’s largest economy.

The influential Ifo institute said its business climate index fell to 86.4 this month from 88.4 in February.

‘The war in Iran has, for the time being, ended hopes of an economic upswing,’ said Ifo president Clemens Fuest.

Some interesting advice for the Bank of England from Rupert Harrison, chairman of the UK council of economic advisors when George Osborne was Chancellor, who is now senior advisor at Pimco.

Posting on X, formerly Twitter, he says: ‘Was just reminded of a great quote (of contested origin) that would be good advice for the Bank of England: “Don’t just do something, stand there!”’

Union leaders are also worried about a headlong rush into high interest rates.

Echoing comments from Charles Stanley, TUC General Secretary Paul Nowak says: ‘Trump’s war on Iran may be cause for caution on interest rates, but the Bank of England should not overreact. Alongside Trumpflation, higher interest rates would increase the pressure on families and businesses.

‘The Bank should remain focused on cutting rates as soon as possible. This will provide important support for economic growth, which is part of the Bank’s remit too.’

He goes on: ‘There are other ways to ease the concerns of financial markets. Governments and central banks should signal that they will act to protect families and businesses, especially with essential energy costs.

‘Ministers should urgently bring together a taskforce of government, employers and unions to develop contingency plans. That will enable swift action in the national interest if it becomes necessary.’

Investors are warning the Bank of England against rushing into interest rate hikes given the weakness of the economy.

‘After the shocks of Covid and the Ukraine war, central bankers remain hypersensitive to anything that risks embedding another inflation spike,’ says Rob Morgan, chief investment analyst at Charles Stanley.

‘Financial markets have reacted sharply, shifting from expecting two rate cuts this year to pricing in up to four hikes. That looks exaggerated given the UK’s fragile backdrop of sluggish growth, a weakening labour market and limited corporate pricing power.

‘Raising rates aggressively into softening demand would risk doing more harm than good.’

But, he adds: ‘The longer the conflict drags on, and energy exports remain disrupted, the more hawkish central banks worldwide are likely to become. If second‑round inflation effects begin to manifest, the Bank of England may feel compelled to follow suit – even if only modestly.’

Brent crude has dropped below $100 to around $98, following reports that the US delivered a 15-point plan for peace with Iran via Pakistan