Introduction: UK Exports to Middle East Decline 20% Since Conflict Began
Good morning, and welcome to our continuous coverage of business, financial markets, and the global economy.
Trade between the UK and the Middle East has contracted since the outbreak of the Iran conflict eight weeks ago, according to recent data.
The British Chambers of Commerce reported a 20% year-on-year decrease in certificates of origin issued for exports to the region in March, falling from 15,437 in March 2025 to 12,360 in March 2026.
This reduction suggests that goods are either being delayed, rerouted, or not shipped at all.
Countries classified under the Arab League for certificates of origin include Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Somalia, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates, and Yemen.
Steven Lynch, director of international trade at the British Chambers of Commerce, commented on the situation:
“Our documentation data shows a clear and immediate shock to UK trade flows linked directly to disruption across the Middle East. The fact that exports tied to Arab markets are falling far faster than elsewhere tells us this is a targeted, region‑specific impact, not a broad‑based downturn.
“Firms are reporting increased delays, rerouting via longer and more expensive pathways, enduring rising insurance premiums and facing stretched lead times. For SMEs in particular, this squeezes cashflow and confidence at a time when exporting is already challenging.”
The challenges persist as the Strait of Hormuz remains severely disrupted, with reports indicating that the US is preparing for a prolonged blockade of Iranian ports.
According to the Wall Street Journal, US President Donald Trump has instructed aides to prepare for an extended blockade of Iran.
UK companies are increasingly pessimistic about the economic outlook and anticipate a decline in activity over the next three months, according to the Confederation of British Industry’s (CBI) latest Growth Indicator.
The CBI found that business volumes in both the services and manufacturing sectors are expected to decrease over the quarter.
Alpesh Paleja, CBI deputy chief economist, explained:
“Business’ expectations for activity have weakened further, as companies continue to grapple with uneven trading conditions, strong cost pressures and renewed uncertainty.
“These challenges have been exacerbated by the conflict in the Middle East, which is increasingly hitting a broad swathe of UK businesses. Our surveys suggest that the additional pressure on costs and supply chains is feeding through to pricing intentions – but not nearly enough to offset the burden facing firms.”
The Agenda
- 10am BST: Eurozone economic sentiment data
- 2.45pm BST: Bank of Canada interest rate decision
- 7pm BST: US Federal Reserve interest rate decision
- 7.30pm BST: Federal Reserve press conference
Reports today that “President Trump has instructed aides to prepare for an extended blockade of Iran” add further complexity for the Bank of England’s Monetary Policy Committee (MPC) and other central banks.
Professor Costas Milas of the University of Liverpool’s Management School stated:
“This is because quantitative (or econometric) models of the UK economy (and other economies) usually find a small impact of oil prices on UK inflation.
In other words, forecasts provided by tomorrow’s Monetary Policy Report are likely to underestimate inflation even if the MPC assumes oil prices of $120-$150 for six (or more) months. It will be good if the MPC also focuses on the global supply chain pressure index of the Fed of New York to provide alternative and arguably more reliable inflation forecasts!”
The recent rise in energy prices has contributed to increased inflation in three German states this month.
In Bavaria, the inflation rate rose in April to 2.9% from 2.8% in March. Lower Saxony saw an acceleration to 3.0% from 2.6%, and Baden-Württemberg increased to 2.6% from 2.5%. In North Rhine-Westphalia, the consumer price index remained steady at 2.7%.
These figures suggest that Germany’s headline inflation rate will also increase this month.
Oil at One-Month High as Trump Plans Extended Iran Blockade
The price of oil has reached its highest level in a month following reports that President Trump has directed aides to prepare for an extended blockade of Iran.
Brent crude rose by 1.8% this morning to above $113 per barrel, marking the highest price since 31 March, a week before the US-Iran ceasefire was agreed.
Crude prices increased after the Wall Street Journal reported that Trump has chosen to target Tehran’s financial resources by restricting oil exports through preventing shipping to and from Iranian ports, aiming to compel Iran to dismantle its nuclear program.
He assessed that his other options—resuming bombing or withdrawing from the conflict—carried more risk than maintaining the blockade, officials said.
However, continuing the blockade prolongs a conflict that has driven up gas prices, negatively impacted Trump’s poll numbers, and further diminished Republicans’ prospects in the midterm elections. It has also resulted in the lowest number of transits through the Strait of Hormuz since the conflict began.
Before the conflict, Brent crude traded around $70 per barrel, peaking at $119.50 in mid-March.
FTSE 100 Hits Lowest Level Since 1 April
Britain’s primary stock index has fallen to its lowest point in nearly a month amid a busy morning of corporate news.
The FTSE 100 share index dropped by 52 points, or 0.5%, in early trading to 10,280 points, its lowest since 1 April.
Wealth manager St James’s Place led declines, falling 6.3% after reporting a decrease in net inflows during the first quarter of 2026 amid “heightened geopolitical uncertainty and market volatility.”
British pharmaceutical company GSK declined 2.7% despite reporting first-quarter profits and sales surpassing analysts’ expectations. AstraZeneca also fell 1%, despite beating profit forecasts due to strong demand for its cancer and rare-disease treatments.
Meta now has the opportunity to review the European Commission’s investigation file and prepare a defense against allegations of breaching EU law by failing to prevent children under 13 from accessing its Facebook and Instagram platforms.
If the findings against Meta are upheld, the company could face fines up to 6% of its global annual turnover. Meta reported revenue of $201 billion (£148 billion) for 2025.
European Commission: Meta Fails to Prevent Minors Under 13 Using Instagram and Facebook
The European Commission has preliminarily determined that Instagram and Facebook are in breach of Europe’s Digital Services Act (DSA) for inadequate protection of minors.
The Commission stated that both platforms, owned by Meta, failed to “diligently identify, assess and mitigate the risks of minors under 13 years old accessing their services.”
It proposes that Instagram and Facebook revise their risk assessment methodologies and enhance measures to prevent, detect, and remove users under 13 years old.
In its preliminary findings, the Commission highlighted the absence of effective controls to prevent minors from entering false birth dates and described Meta’s tool for reporting underage users as “difficult to use and not effective.”
Henna Virkkunen, executive vice-president for Tech Sovereignty, Security and Democracy, said:
“Meta’s own general conditions indicate their services are not intended for minors under 13. Yet, our preliminary findings show that Instagram and Facebook are doing very little to prevent children below this age from accessing their services. The DSA requires platforms to enforce their own rules: terms and conditions should not be mere written statements, but rather the basis for concrete action to protect users – including children.”
In banking news, Santander UK has taken an additional £179 million provision related to the motor finance scandal.
This charge reduced Santander UK’s pre-tax profits in Q1 2026 to £202 million from £358 million a year earlier.
The total provision now stands at £633 million, described as ‘at the upper end of the previously assessed range.’
This follows the Financial Conduct Authority’s announcement of a compensation scheme for customers who were overcharged for loans when purchasing vehicles, due to commission payments between lenders and car dealers from 2007 to 2024.
Santander UK has opted not to challenge the scheme and has updated its scenarios and assumptions, including operational and legal costs, though some argue the scheme does not compensate enough affected customers.
Lloyds Profits Rise Despite £151m Impairment Charge from Middle East Conflict
Lloyds Banking Group has exceeded profit expectations for the first quarter of 2026 despite economic uncertainty stemming from the Iran conflict.
Earnings increased by 33% year-on-year to £2 billion, surpassing analyst forecasts of £1.8 billion.
Lloyds CEO Charlie Nunn stated:
“We remain focused on supporting UK households and businesses as they look to strengthen their financial positions and achieve their goals.”
The bank recorded a £151 million impairment charge reflecting the deteriorating economic outlook due to the Middle East conflict, partially offset by a £50 million improvement related to “global tariff and political disruption risks.”
The ongoing conflict has led many holidaymakers to delay bookings until closer to departure dates.
Jet2, a flights and package holiday company, reported that since the conflict began, customer booking profiles have shifted closer to departure dates, stating:
“At present, Q1 (April, May, June) combined average load factor is in line with the prior year, with the current geopolitical uncertainty limiting visibility for the peak summer season and beyond.
As previously stated, we continue to invest in load factor and remain fully committed to pricing that is attractive and represents real value to our Customers.”
Passenger bookings for summer 2026 are up 6.2% compared with the previous year, while Jet2’s capacity is currently 7.7% higher than in summer 2025.
The company also noted it has hedged 87% of its summer jet fuel requirements, providing a high degree of cost certainty.
Heathrow Airport has issued a cautionary statement regarding an uncertain outlook despite a positive start to the year.
London’s largest airport reported a 3.7% increase in passengers during the first quarter of 2026, reaching 18.9 million.
“Following airspace closures in the Middle East, there was an increase in transfer passengers across Heathrow’s network. While Heathrow has temporarily absorbed demand from elsewhere, passenger numbers for the rest of the year are likely to be impacted whilst there is significant uncertainty in the Middle East.”
Heathrow added that it has observed some impact from recent Middle East disruptions but has not yet revised its 2026 outlook.
Increase in UK Firms Facing Financial Distress
The number of UK businesses in “critical financial distress” has risen by more than a third amid renewed pressures linked to the Middle East conflict, according to new research.
Hotels and leisure sectors are particularly affected, having faced increased labor costs and taxes over the past year, as shown in the latest report from Begbies Traynor Group (BTG).
BTG’s quarterly red flag report revealed that the number of companies in “critical financial distress” increased by 36.9% to 62,193 in Q1 2026 compared with the same period in 2025.
The number of businesses in “significant” financial distress also rose by 9.6% year-on-year to 634,867.
Ric Traynor, executive chairman of BTG, commented:
“The shockwaves from a war in the Middle East will be felt across every corner of the global economy for some time to come.
After initial signs that the UK’s GDP was improving at the very start of the year, it now feels like after taking a step forward, the UK has taken a few steps backwards following one of the most severe energy shocks in living memory.”
