Fragile ceasefire still holds

Markets ended the week navigating a mix of softer US economic data, persistent inflation pressures and fragile geopolitical developments, leaving sentiment cautious despite pockets of resilience. A downward revision to first-quarter US growth and steady core inflation have reinforced expectations that policy will remain restrictive for longer, even as underlying demand shows signs of moderation. Against that backdrop, investors have also been weighing an increasingly fragile Middle East ceasefire and ongoing diplomatic uncertainty, keeping risk appetite in check and driving a more defensive tone across asset classes.

The FTSE 100 was up 0.1% over the week by mid‑session on Friday, while the more UK‑focused FTSE 250 traded 2.4% higher.

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Middle East

A ceasefire between the US, Israel and Iran has reduced the risk of immediate escalation but remains highly precarious, with sporadic strikes, deep disagreements over Tehran’s nuclear programme and uncertainty over a final deal. Taken together, the region is in a state of uneasy pause rather than durable peace, with diplomacy active but fragile and the risk of renewed conflict still high.

A majority of British businesses are feeling the impact of the Iran conflict or expect to feel it soon with the economic fallout likely to be felt “for many months” to come, according to a report from the British Chambers of Commerce (BCC). The report said that 80% of the more than 800 companies in its latest survey reported an existing or expected impact from the war in the Gulf, with energy prices and shipping costs most frequently cited. 

Economics

The British Retail Consortium’s (BRC) data showed UK shop price inflation ticked up modestly in May, with the index rising to 1.2% year-on-year from 1.0% in April, higher than expected. It was driven chiefly by a rebound in non-food prices even as food inflation eased to its lowest level in a year at around 2.7%, signalling continued supermarket competition and discounting. Non-food prices returned to growth, increasing 0.5% annually after prior deflation, reflecting mounting input costs such as shipping and raw materials, while furniture and beauty categories led gains. The data points to a still subdued retail inflation backdrop overall but suggest underlying pressures are rebuilding, with retailers warning they cannot absorb higher energy, labour and supply-chain costs indefinitely, implying a gradual firming in shop prices ahead that could feed into the broader Consumer Price Index and complicate the outlook for households and monetary policy. The data supports the ‘higher-for-longer’ view on UK interest rates. 

Chancellor Rachel Reeves has instructed cabinet colleagues to award government contracts in four critical industries directly to British companies, making clear her irritation that ministers have been sending too much government business abroad. In a letter seen by the Guardian, the chancellor tells every cabinet minister in charge of a spending department to “buy British” wherever possible, adding that she is disappointed they are not already doing so. 

US consumer confidence coming in stronger than expected in May suggests the all-important US consumer remains more resilient than feared. This reinforces the view that consumption – which typically accounts for around two thirds of total US output – can continue to underpin the economy in the near term. For the Federal Reserve, however, the data adds complexity to an already challenging situation. It suggests that financial conditions may not yet be restrictive enough to decisively cool the economy, supporting the “higher-for-longer” view on US interest rates.

US economic growth in the first quarter was revised lower in the second reading, with Gross Domestic Product (GDP) expanding at an annualised 1.6%, down 0.4 percentage points from the initial estimate, as softer consumer spending and weaker investment offset strength elsewhere. Output still picked up from a sluggish 0.5% pace in the previous quarter, supported by exports, government spending and business investment, though a sharp rise in imports weighed on the headline figure and underlined an uneven growth mix. Underlying demand remained relatively firm, but inflation pressures stayed elevated and corporate profit growth slowed markedly, pointing to a cooling but still expanding economy at the start of 2026. 

Company news

Kingfisher reported a subdued but resilient start to its financial year, with first-quarter underlying like-for-like sales down 0.7% against a strong comparator, reflecting a soft home improvement market and a late start to spring that weighed on footfall. Total sales edged up 0.8%, supported by continued strength in trade and e-commerce, which grew at double-digit rates, while Screwfix again outperformed with 4.1% like-for-like growth and market share gains, offsetting a 4.1% decline at more seasonal B&Q. Performance was mixed geographically, with declines in France and marginal weakness in Poland, though the group emphasised resilient core categories and ongoing strategic momentum. Despite the softer sales backdrop, the company maintained full-year profit guidance and highlighted disciplined cost control and strong cash generation, signalling confidence that market share gains and growth initiatives will underpin performance through a still-challenging consumer environment. 

Bodycote confirmed it is in takeover talks after receiving a conditional all-cash approach from US private equity group Apollo Global Management valuing the heat-treatment specialist at about £1.5bn, or 885p a share, a roughly 27% premium to its undisturbed price. The proposal, which also allows investors to retain a 16.1p dividend, follows a series of earlier approaches and sent the shares up as much as 19%, underscoring strong market expectations of a potential deal. Bodycote stressed discussions are ongoing with no certainty of a firm offer, while Apollo has until 19 June under takeover rules to confirm its intentions. The bid highlights continuing overseas and private equity interest in UK-listed industrials, widely viewed as undervalued, with Bodycote’s position in aerospace and energy supply chains seen as particularly attractive to long-term investors. 

Superdrug owner AS Watson is exploring a blockbuster stock market debut that could value the global health and beauty retailer at around $30bn, with plans for a dual listing in London and Hong Kong later in 2026 aimed at raising roughly $2bn. The Hong Kong-based group, controlled by Li Ka-shing’s CK Hutchison, has hired advisers including Goldman Sachs and UBS as it weighs the structure and timing of the float, which remains contingent on market conditions and could still be delayed. The potential initial public offering (IPO) would rank among the largest retail listings in recent years and offer a boost to London’s struggling new issues market, while also giving existing investors such as Singapore’s Temasek an opportunity to exit. It comes as strong recent growth at Superdrug and the group’s broader international footprint underpin investor appeal, even as softer consumer demand in some markets clouds the outlook for the sector. 

Shares in BT Group fell after reports suggested that the UK government would oppose any attempt by Indian billionaire Sunil Bharti Mittal to increase his stake in the telecoms group, citing concerns over maintaining sovereign control of critical national infrastructure. The Financial Times said officials had made clear they would block any move above the current near‑25% holding, a threshold that would trigger a formal national security review, effectively limiting Mittal’s influence over the business. The news weighed on investor sentiment, with the stock dropping around 3%, as markets reacted to the prospect of tighter government intervention despite BT’s importance as a core provider of broadband infrastructure to more than 22 million UK homes. 

SSE reported full-year results at the upper end of its guidance range, underlining resilient performance despite a mixed operating backdrop, as the UK energy group continued to ramp up investment in electricity networks and renewables. Pre-tax profit was broadly flat at around £1.84bn, while adjusted earnings dipped slightly, reflecting lower profitability in some divisions and less favourable weather in renewables, although this was partly offset by strong growth in its transmission business. The company boosted its dividend by 7% to 68.7p and maintained its long-term outlook, highlighting progress on its £33bn investment programme to 2030, which management said would drive future growth and support the energy transition while providing more stable returns.

Johnson Matthey reported a mixed but strategically significant set of full-year results, as the chemicals group made progress in its push to become a more focused and cash-generative business despite weaker headline profitability. Underlying operating profit rose modestly, while margins in its key Clean Air division improved strongly to 14.5%, offsetting softer trading in areas such as services for platinum group metals. The company pressed ahead with a major portfolio overhaul, including the £1.3bn sale of its Catalyst Technologies arm – set to return about £1bn to shareholders – alongside the $360m acquisition of Cormetech to strengthen its emissions-control offering. Management said it remains on track for low-to-mid-single-digit profit growth in the coming year as it reshapes the business for longer-term value creation.

Pets at Home reported a sharp fall in full-year profits, with underlying pre-tax earnings down about 30% as weak retail trading and price cuts offset continued growth in its veterinary arm, which remains the group’s main profit driver. Sales were broadly flat overall, reflecting subdued consumer demand in its core retail business, although management said a turnaround plan, including price reductions and product changes, was beginning to support volumes and online growth. The company signalled cautious optimism for the year ahead, with early signs of recovery in retail and expectations of a return to profit growth, underpinned by the more resilient vet division. 

Synopsys reported strong second-quarter results, with revenue surging to $2.28bn, up sharply year-on-year and ahead of expectations, while adjusted earnings per share of $3.35 also beat forecasts, driven by robust demand for semiconductor design tools linked to the rapid growth of artificial intelligence. The electronic design automation group saw broad-based strength across its core design automation business, although reported net income fell to $17m due to acquisition-related costs and other one-off charges tied to its Ansys deal. Buoyed by the performance, the company raised its full-year outlook for both revenue and earnings, signalling confidence in continued momentum as AI-driven chip complexity fuels long-term demand across its portfolio.