Bank of England warns of supply shock as oil price plummets and shares surge on easing Middle East conflict fears
Brent crude has fallen below $100 a barrel, with the international benchmark dropping over 15% to $99.78, as markets rallied on hopes that the war with Iran could conclude within weeks. The slide followed a claim from former US President Donald Trump that the conflict would end in “two or three weeks,” sparking a sharp relief rally after prices had closed the previous night at $118.35.
Market Rally Amid Lingering Uncertainty
A “coiled spring was unleashed” across global equities, according to Richard Hunter of interactive investor. The FTSE 100 surged 1.8%, following even stronger gains in Asia, where Japan’s Nikkei rose 5.2%. Analysts noted a mountain of sidelined cash being put to work on the optimism. Yet the rally comes with profound scepticism. Susannah Streeter of Wealth Club pointed out that Brent crude, even at this lower level, remains around 50% higher than in mid-February before tensions seriously escalated, signalling deep-seated worries. Derek Halpenny of MUFG warned there are “numerous questions” unanswered, not least whether Iran would reopen the critical Strait of Hormuz, through which about 20% of global oil and LNG trade passes, and on what terms.
Bank of England Rings Alarm on Stability and AI
Behind the market euphoria, the Bank of England has delivered a sobering assessment, warning that the conflict has dealt “a substantial negative supply shock” to the world economy. In its latest financial stability report, the Bank cautioned this shock will weigh on growth, increase inflation and tighten financial conditions. It fears the unpredictable environment increases the possibility that several vulnerabilities could “crystallise simultaneously,” damaging financial stability. Heightened uncertainty, the Bank said, has made it harder for markets to price underlying economic fundamentals, raising the risk of sharp market shifts.
The Bank of England issued a specific and detailed warning about the threat to the artificial intelligence sector. It highlighted the energy-intensive nature of the AI supply chain, from manufacturing key components to operating vast data centres. The report stated that supply chain disruption for key input chemicals and materials “could similarly act as a bottleneck on the buildout of AI infrastructure capacity.” This directly links geopolitical strife to the valuation and development trajectory of one of the world’s most-hyped technological frontiers.
Economic Shockwaves Hit Key Sectors
The reality of the supply shock is already being felt across industries. In the UK, factories reported the largest month-on-month jump in costs since 1992 in March, according to the S&P Global UK Manufacturing Purchasing Managers’ Index. Supplier delivery times lengthened at the greatest extent since mid-2022, contributing to a drop in production output. A similar picture emerged in the eurozone, where supplier delays were the worst in over three-and-a-half years and input cost inflation hit its highest in over three years.
The aviation sector is bracing for direct impact. Michael O’Leary, chief executive of Ryanair, warned that jet fuel supply to Europe could be disrupted from May if the conflict continues, risking 10% to 25% of the airline’s supplies through the summer. The International Air Transport Association estimates 25-30% of Europe’s jet fuel demand originates from the Persian Gulf. While Ryanair is 80% hedged, the remaining fuel is costing almost double, pointing to higher airfares ahead.
The UK housing market is under strain from multiple angles. The steady rise in mortgage rates since the war began has paused, but the damage is done. Moneyfacts reports the average two-year fixed rate has jumped from 4.83% at the start of March to 5.84%, adding over £1,800 a year to the cost of a typical £250,000 loan. This volatility has contributed to a collapse in confidence, with housebuilder Berkeley Group announcing it will stop buying new land and reduce investment, citing “recent geopolitical events” and reduced confidence in interest rate cuts.
This pressure is reflected in the public mood. The UK consumer confidence index, produced by YouGov and the Centre for Economics and Business Research, fell by 2.9 points in March to 105.8, its lowest level in nearly a year, with people gloomier about their finances and job security. The warning from Yannis Stournaras, governor of Greece’s central bank, that Europe could face recession if oil prices jump over $150 a barrel, underscored the fragility of the situation.
Legal Challenge Adds to Property Sector Woes
Away from the immediate war economy, a significant legal challenge has been filed against property portal Rightmove. A £1.5bn claim was submitted to the Competition Appeal Tribunal, alleging the company abused its dominant position by charging “excessive and unfair” subscription fees. Jeremy Newman, who is leading the case, said there had been an “extremely encouraging response from estate agents” since announcing the action. Rightmove responded that the claim was “without merit” and that it would defend itself “vigorously.” The company’s shares dropped 8% following the news.
