UK markets rose this week, with the FTSE 100 Index gaining 1.33% to trade at 8,660 points at the time of writing. The Bank of England kept interest rates on hold at 4.5% at its latest Monetary Policy Committee meeting this week, while leaving the door open to further reductions this year as it grapples with both global trade tensions and continuing price pressures.
The UK central bank is facing a delicate balancing act in the coming months as it gauges evidence of a flatlining economy and weakening jobs market against the prospects of a pick up in inflation. Minutes from this week’s meeting leave open the possibility of a rate reduction when the committee next meets in May, but did not give a strong signal as to the likelihood of a move.
The decision on Thursday followed a 0.25% cut last month, when the Bank of England also halved its 2025 growth estimate to 0.75%. The bank believes consumer price inflation will accelerate to 3.75% later this year, compared with 3% in January and well above its 2% target. The Organisation for Economic Co-operation and Development (OECD) has also trimmed its UK GDP growth estimate for 2025 to 1.4%, a 0.3% reduction from its previous calculation, following a disappointing recent economic performance.
The OECD added in its interim economic outlook that UK growth will slow to 1.2% in 2026 after cutting its forecast for the year by 0.1%. The downgrade comes ahead of Rachel Reeves’ Spring Statement on March 26th, when official forecasts are expected to show a much weaker GDP outlook. The latest OECD forecasts factor in the US tariffs imposed by Donald Trump, which it said will drag on global activity as well as add to trade costs and raise consumer goods prices. The interim outlook downgraded output predictions for 12 G20 countries, leaving the UK set to have the second-highest growth in the G7 in 2025 after the US.
The Labour government unveiled cuts to disability benefits this week, that it says will save more than £5 billion a year by the end of the decade. The Chancellor is looking for further cuts to fill a hole in the public finances and will trim proposed budgets for Whitehall departments later in the parliament, according to officials.
The Prime Minister, Sir Keir Starmer, has ruled out a return to austerity, but officials say Reeves has always indicated she will adjust spending plans if the economic outlook worsened. Elsewhere, UK wage growth remained strong in the three months to January, with annual growth in average weekly earnings, excluding bonuses holding at 5.9%, according to figures from the Office for National Statistics.
Commodity markets
In the commodity markets, Brent crude futures traded around $71 per barrel on Friday and are set to end the week slightly higher after fresh US sanctions on Iran and a new OPEC+ plan for several members to cut output, raised bets on tightening supply.
The US announced new Iran related sanctions on Thursday, which for the first time targeted an independent Chinese refinery among other entities and vessels in supplying Iranian crude oil to China. This marked Washington’s fourth round of sanctions against Iran since US President, Donald Trump in February vowed to reimpose a maximum pressure campaign on Tehran pledging to drive the country’s oil exports to zero. Oil prices were also supported by a new OPEC+ plan announced on Thursday for seven members to further cut output to make up for producing more than agreed levels. The plan would represent monthly cuts of between 189,000 – 435,000 barrels per day, and will last until June 2026.
Global risk premiums rose after Israel launched a new ground operation on Wednesday in Gaza after breaking a ceasefire of nearly two months. The US kept up airstrikes on Houthi targets in Yemen in retaliation for the group’s attacks on ships in the Red Sea. Donald Trump has also vowed to hold Iran responsible for future Houthi attacks.
The dollar was keeping a lid on crude prices. It strengthened after the Federal Reserve indicated it was in no rush to cut interest rates further this year due to uncertainties around US tariffs, making oil more expensive for foreign buyers. US tariffs on Canada, Mexico and China have raised recession fears, which have also weighed on oil prices as this would reduce demand for crude.
Gold prices traded around $3,030 an ounce on Friday, hitting record highs once again this week, supported by safe haven demand.
Equity markets
US equity futures fell on Friday as investors reassessed economic risks and the Federal Reserve’s response to potential inflation and slowing growth. In Thursday’s regular trading session, the Dow Jones Industrial Average lost 0.03%, the S&P 500 fell 0.22%, whilst the Nasdaq Composite declined 0.33%.
The Federal Reserve slashed its US growth forecast and lifted its inflation outlook this week, underscoring concerns that Donald Trump’s tariffs will hurt the world’s biggest economy. The US central bank’s latest projections showed officials expect GDP to expand by 1.7% this year, with inflation forecast to rise by 2.7%.
Policymakers left the Federal Reserve’s key interest rate unchanged at the end of a two-day meeting on Wednesday. Donald Trump criticised the Federal Reserve’s decision to hold rates, calling for the central bank to reduce borrowing costs to offset new tariffs he plans to unveil next month.
The Federal Reserve also announced it was slowing down the pace of its quantitative tightening programme, lowering the amount of US Treasury debt it allows to roll off its balance sheet each month from $25 billion to $5 billion beginning in April. The Federal Open Market Committee meeting came at a crucial time for the US economy as Donald Trump has pledged deep reductions to federal spending and broad tax cuts. He has also imposed steep new tariffs on imports, sparking a global trade war.
Surveys have shown US consumers and businesses are fretting over the levies, which have depressed demand and increased price pressures. The latest projections show that Federal Reserve officials broadly expect one or two more 0.25% rate cuts this year. Investors are expecting two to three 0.25% cuts by the end of 2025. All of the voting members of the committee backed this week’s decision to keep rates on hold.
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