Oil and gas prices rise as US and Iran trade strikes
Oil and gas prices increased sharply this morning following continued attacks between Iran and the US, diminishing hopes for a peace agreement.
Early today, US Central Command announced it had targeted Iranian "radar and command and control sites for drones in Goruk, Iran and Qeshm Island" over the weekend, describing the actions as "self-defence" in response to "aggressive Iranian actions."
Meanwhile, Iran’s Islamic Revolutionary Guard Corps stated on Monday that it had struck a US air base in southern Iran used for attacks, without specifying which base.
Our Middle East liveblog provides comprehensive coverage of these developments.
This recent exchange of strikes has driven Brent crude prices back up to $94.29 per barrel, a 3.5% increase from Friday night’s close at $92 per barrel.
Gas prices have also risen; the month-ahead British wholesale gas contract is up nearly 6% to 117.3p per therm, compared with 78.5p before the Iran conflict began.
Former US President Donald Trump has asserted that "Iran really wants to make a deal," but market sentiment remains skeptical about any imminent major breakthrough.
Paul Donovan, chief economist at UBS Global Wealth Management, said:
"Oil prices have edged higher on the lack of any discernible progress toward an Iran-US agreement. As with reports of an imminent deal last week, the reaction is muted. A jaded cynicism has come over investors, and in the absence of a definite statement from Iran there is a tendency to downplay comments from the US administration."
UK factory input price inflation near four-year high
The conflict in Iran has contributed to rising costs for UK manufacturers.
The latest survey of purchasing managers at British factories revealed "substantial pressure" on input prices and supply chains during May.
Input prices rose at their fastest rate in nearly four years, driven by increased costs for chemicals, electronics, energy, foodstuffs, fuels, plastics, metals, packaging, paper, and timber.
Factory leaders cited factors including "the war in the Middle East, commodity market gyrations, geopolitical strife, supply chain issues, material shortages, tariffs, rising labour costs and higher taxes," according to data firm S&P Global.
The report also indicated that the UK manufacturing sector's expansion accelerated, with production volumes growing at a three-month high.
This lifted the UK manufacturing Purchasing Managers’ Index (PMI) to a four-year peak of 53.9 in May, slightly up from 53.7 in April (any reading above 50 indicates growth).
Eurozone factory input cost inflation hits four-year high
Eurozone manufacturers experienced the largest increase in input costs in four years last month.
The Iran conflict contributed to higher raw material and intermediate goods prices, according to the latest survey of European manufacturing purchasing managers.
Factory leaders also reported stagnant demand in May, with export orders declining.
This resulted in the S&P Global Eurozone Manufacturing PMI falling to 51.6 in May, down from April’s near four-year high of 52.2 (readings above 50 indicate growth).
Chris Williamson, chief business economist at S&P Global Market Intelligence, commented:
"Although euro area manufacturers reported an expansion for a fourth successive month in May, the sector is showing signs of struggling under the weight of rising prices and supply disruptions emanating from the war in the Middle East. A key development in May was yet another surge in energy and raw material prices, causing the largest monthly jump in firms’ costs for four years. The incidence of supply chain delays has meanwhile risen to the highest since the pandemic supply squeeze of 2022, adding further upward pressure to prices. Factories are having to pass higher costs on to customers, which will inevitably drive up inflation in the coming months. However, demand is being hit by higher prices, with May seeing order books stall after three successive monthly improvements."
UK house prices fall amid market headwinds
The recent 0.6% decline in UK house prices marks the largest monthly drop since June 2025, according to Nationwide’s data.
Economists surveyed by had anticipated a smaller decline of 0.2%.
Sarah Coles, head of personal finance at AJ Bell, noted that the drop indicates the property market is beginning to face challenges.
She said:
"Global turmoil is taking a toll on the property market. House prices fell between April and May and are up just 1.7% in a year. It’s a valuable reminder that property investments aren’t always safe as houses. The Nationwide House Price Index only provides a partial picture of the market, but it’s particularly timely, because it looks at prices at the point of mortgage approvals – months ahead of the completion data we get from the Office for National Statistics. We can see the market is starting to struggle in the face of some tough headwinds. Falling consumer confidence, rising unemployment, higher mortgage rates and fears of rising prices are denting buyer enthusiasm. The fact there are fewer buyers around is encouraging people to negotiate hard, so average prices are falling. There’s every chance the property market has a tough few months ahead. The progress of peace talks in the Middle East is impossible to forecast, but even if there was a resolution in the near future, oil shortages are likely to keep prices higher, pushing up inflation as we go through the summer. If we get the interest rate rises the market is expecting, mortgages may well remain elevated, putting affordability under pressure. In a slower market, where prices are as likely to fall as to rise, it puts real pressure on downsizers. For anyone who has considered their property as at least part of their retirement income, it could mean some recalculation and some difficult choices. For anyone planning to sell an investment property as they go through retirement, this could throw a spanner in the works. Periods like this are why property can’t reliably lie at the heart of retirement planning, as your investment is highly concentrated and illiquid. It’s why Plan A should always involve robust pension contributions."
Shares in ME Group tumble amid demand slowdown
Shares in vending machine operator ME Group fell by 20% this morning after the company reported weakening demand.
ME Group, which operates photobooths, launderettes, washing machines, digital printing kiosks, and food vending machines, warned shareholders that trading deteriorated in April, particularly in France.
The company attributed the decline to reduced demand for official photo ID due to decreased air travel amid the Iran conflict, and lower consumer spending slowing revenue growth at its self-service launderettes.
ME Group stated:
"During April, the Group experienced a softening in revenue, particularly in the French photobooth and laundry businesses. The Board believes this is largely attributable to a shift in consumer spending patterns driven by lower consumer confidence due to the ongoing conflict in the Middle East."
European and US stock markets show mixed reactions
European stock markets opened June with muted activity.
London’s FTSE 100 index fell by 30 points at the start of trading, with precious metals miners Fresnillo (-2.8%) and Endeavour Mining (-2.6%) leading losses, followed by defence companies BAE Systems (-2%) and Babcock (-2.3%).
Elsewhere, Germany’s DAX rose slightly by 0.06%, France’s CAC 40 dipped by 0.1%, and Italy’s FTSE Mib remained flat.
Wall Street is expected to open marginally higher.
Senior equity analyst at Hargreaves Lansdown commented:
"The tug of war for investors remains much the same: strong corporate earnings and AI-led optimism are still doing plenty of heavy lifting, but elevated bond yields, firm oil prices, and uncertainty over the path for interest rates are keeping a lid on the enthusiasm."
easyJet shares surge 11% amid takeover interest
UK airline easyJet has criticized private credit firm Castlelake for considering a "highly opportunistic" takeover bid.
On Friday, Castlelake announced it was in the "early stages of considering a possible offer" for easyJet but had not contacted the company’s board.
This morning, easyJet stated it would consider any proposal but would be "especially mindful of its valuation and deliverability."
easyJet said:
"Valuation: the Board notes the highly opportunistic timing when easyJet’s share price is temporarily depressed due to the current situation in the Middle East and its impact on customer confidence and jet fuel prices. Deliverability: the Board notes the considerable regulatory, financial and other execution challenges associated with a potential takeover of easyJet."
easyJet shares rose 11% at the start of trading to 442p, their highest level in three months.
UK house prices fall: What the experts say
Tom Bill, head of UK residential research at Knight Frank, commented:
"This is further evidence that the housing market slowed down at precisely the time of year when you would expect momentum to be building. There won’t be a cliff-edge moment, but the impact of higher borrowing costs will erode spending power and squeeze house prices this year as mortgage rates agreed before the Middle East conflict gradually disappear. With the Bank of England likely to sit on its hands for the foreseeable future, we expect minimal house price growth in 2026, with uncertainty around the Budget and ideological direction of the government likely to keep a lid on activity."
Nathan Emerson, CEO of Propertymark, said:
"Stable house prices will be welcomed by many buyers and sellers looking for greater certainty in the market after a prolonged period of economic volatility. Buyers who need to move are continuing to act decisively, particularly where mortgage rates have stabilised, and supply levels remain constrained. Many households are continuing to carefully assess affordability before making decisions, particularly as mortgage costs remain higher than many borrowers have become accustomed to over recent years. However, steady pricing can help support confidence and encourage more balanced negotiations between buyers and sellers."
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, added:
"Despite concerns about the conflict in the Middle East, demand continues to hold up for well-priced, high-quality homes and the closer the asking price is to true market value, the greater the likelihood of securing a successful sale. Buyers are not stretching to make offers they don’t believe will be accepted – they are simply choosing alternative properties. In certain price brackets, buyers have the luxury of choice and vendors need to be mindful of this. While the wider economic backdrop may temper the pace of growth, we are seeing a more price-sensitive market where realism and accurate positioning are key."
Nationwide’s Robert Gardner also expressed optimism that the UK housing market could strengthen if the Middle East crisis eases:
"Housing affordability had been improving steadily in recent years due to a combination of income growth outpacing house price growth by a wide margin and a modest decline in borrowing costs. While market interest rates have risen in recent months, the impact on affordability has so far been modest. Indeed, swap rates, which underpin fixed‑rate mortgage pricing, remain well below the highs reached in 2023 and are broadly in line with levels prevailing in 2024, implying only a partial reversal of earlier gains. This provides some confidence that, if the latest shock passes relatively quickly, and energy prices normalise in the quarters ahead, any near-term softening in the housing market will also prove short lived."
This chart shows how UK house prices have now dipped back from their record high:
Introduction: House prices fell in May
Good morning, and welcome to our rolling coverage of business, financial markets, and the global economy.
UK house prices declined last month for the first time this year, as the Iran conflict increased borrowing costs and weakened demand.
Lender Nationwide reported that prices fell by 0.6% in May, the first monthly decrease since last December, as rising mortgage rates dampened buyer demand.
This reduced the annual house price inflation rate to 1.7% in May, down from 3% in April, with the average property price slipping to £278,024.
Robert Gardner, Nationwide’s chief economist, said:
"Given the uncertainty caused by developments in the Middle East and the subsequent rise in energy prices and market interest rates, some loss of momentum was to be expected. Indeed, consumer confidence has weakened noticeably since the start of the conflict, with GfK’s headline index falling to its lowest level since late‑2023 in April, with only a marginal increase in May. 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 and remained deep in negative territory in April."
Martin Beck, chief economist at WPI Strategy, noted that the UK housing market’s recent resilience is "being tested" by rising borrowing costs following the Middle East crisis.
He said:
"May’s fall should not be overinterpreted, but it does underline the pressure facing buyers. Weak consumer confidence, sluggish income growth and mortgage rates that remain far above the ultra-low levels seen for much of the last decade-and-a-half are continuing to weigh on affordability. While those headwinds make it hard to see house prices returning to consistent growth in the near-future, the US-Iran ceasefire and recent diplomatic developments have reduced the risk of a more severe shock to inflation, borrowing costs and the housing market."
UK average mortgage rates fell at the end of last week amid hopes for progress in US-Iran peace talks.
However, the market remains challenging, particularly for first-time buyers, who face the toughest conditions since the financial crisis, according to the head of Britain’s largest housebuilder.
The agenda
- 7am BST: Nationwide house price index for May
- 9am BST: Eurozone manufacturing PMI for May
- 9.30am BST: UK manufacturing PMI for May
- 3.30pm BST: Sir Alan Bates to give evidence to MPs on government compensation schemes
