Iran war pushes up global food prices; Starmer’s promise to remain as PM boosts pound and UK bonds
Global food prices have risen for the third consecutive month, pushing the United Nations’ benchmark index up by 1.6% in April as the Iran war drives a sustained increase in energy and fertiliser costs. The UN’s Food and Agriculture Organization (FAO) said the latest gain in its Food Price Index followed similar rises in February and March, with prices for vegetable oils, meat and cereals all moving higher, while sugar and dairy products fell.
Food price surge driven by energy and fertiliser costs
The closure of the Strait of Hormuz, effectively sealed by the conflict between the US and Iran, is at the heart of the upward pressure. Elevated energy prices have pushed up the cost of manufacturing fertiliser, and the FAO noted that farmers are already responding by reducing wheat plantings for 2026 in favour of less fertiliser-intensive crops. “The price increase was further supported by expectations of reduced wheat plantings in 2026, as farmers shift to less fertiliser-intensive crops amid high fertiliser prices, driven by elevated energy costs and disruptions linked to the effective closure of the Strait of Hormuz,” the FAO said.
Vegetable oils recorded the steepest monthly rise, jumping 5.9% in April, the fifth consecutive monthly increase. The FAO said international palm oil prices were underpinned by prospective higher demand from the biofuel sector, policy incentives in several producing countries and higher crude oil prices, with additional upward pressure from concerns over lower production in Southeast Asia. Meat prices rose by 1.2%, with bovine meat reaching a new peak. Cereal prices were up 0.8%, partly due to drought in parts of the United States and expectations of below-average rainfall in Australia.
Two commodity groups bucked the trend. Dairy prices fell 1.1% thanks to lower international quotations for butter and cheese, with abundant milk supplies in the European Union. Sugar prices plunged 4.7%, a decline the FAO attributed to expectations of ample global supplies, improved production prospects in key Asian countries such as China and Thailand, and the onset of Brazil’s new harvest under favourable weather conditions. The overall increase in food costs has fuelled fears that prices will rise in shops for months and that new shortages may emerge in Africa.
UK political turbulence and market reaction
In the UK, a bruising set of local elections for the governing Labour Party has injected fresh political uncertainty into financial markets, though the initial response has been relatively calm. Prime Minister Keir Starmer, whose party has lost hundreds of council seats with counting still under way, insisted he will not resign. “No, I’m not going to walk away and plunge the country into chaos,” he told Sky News. Michael Thrasher, Sky News elections analyst, said the latest results suggest Labour is on course to lose more than 1,500 seats, below what he called “the doomsday figure of 2,000 losses”.
Starmer’s vow to stay on helped push up the pound and lower bond yields. Sterling rose more than half a cent against the US dollar to $1.361, and was up 0.05% against the euro. Analysts at Convera, led by senior FX and macro strategist Antonio Ruggiero, noted that “sterling has traded relatively calmly into today’s open, despite UK local elections expected to deliver a bruising defeat for the Labour government.” He added that the conflict in the Middle East may have bolstered Starmer’s standing marginally, “or at least dampened near-term calls for his removal given the uncertain geopolitical backdrop.”
UK government bonds rallied after Starmer’s statement. The yield on benchmark 10-year gilts fell 2.6 basis points to 4.894%, while 30-year yields dropped almost 5 basis points to 5.562%. Earlier this week, 30-year yields had touched a 28-year high of 5.778%. Analysts cautioned that the relief could prove temporary. “It’s an initial relief rally, but ultimately I think the fireworks are still to come,” said Lloyd Harris, head of fixed income at Premier Miton Investors. Neil Wilson, investor strategist at Saxo UK, said “bond vigilantes are lurking” and that the 10-year yield was holding below 4.9% and the 30-year below 5.6%. “Election results look very bad for Labour, very good for Reform. We’ll see just how much pressure it brings to bear on the prime minister.” Craig Veysey, fixed income lead at Guinness Global Investors, said “the local election results add to UK political uncertainty, but they do not appear to represent the worst-case scenario of an imminent leadership challenge.”
Consultancy Oxford Economics warned that the election results are likely to trigger another bout of uncertainty. Economist Alexander Harbey said: “The key risk is that any instability triggered by these results — such as a leadership challenge — causes markets to lose faith in the government’s fiscal plans, driving bond yields up further and weakening economic growth dynamics.” He added that an increasingly fragmented political landscape, rising support for parties less committed to fiscal discipline, and the expected success of pro-independence parties in Scotland and Wales all add to uncertainty, making it harder for markets to price in political change and weighing on business confidence and investment.
The Iran war is also hitting the UK corporate sector. International Airlines Group (IAG), owner of British Airways, warned that profits will be lower than expected this year because of the surge in jet fuel costs. IAG said it expects a “more substantial impact” from the Middle East crisis throughout the rest of the year and cautioned that if the conflict continues to restrict flows of crude oil and jet fuel from the Middle East, “there is the potential for supplies of jet fuel to be restricted on a global basis.” IAG shares fell 5% in early trading, contributing to a 0.65% decline in the FTSE 100 index to 10,209 points. Intertek Group dropped 6.5% after rejecting a takeover approach.
Beyond the UK, the war continues to weigh on Europe’s largest economy. German industrial production fell by 0.7% in March, far weaker than expectations of a 0.5% rise, as the Middle East conflict started to take its toll. Analysts at ING said: “Not only was the February drop revised downwards, with a 0.7% month-on-month decline in March, but industrial production in the full first quarter was more than 1% weaker than in the final quarter of 2025.” Asian equity markets also lost ground overnight after the US and Iran exchanged fire, with the Nikkei, KOSPI, Hang Seng, CSI 300 and Shanghai Composite all lower. Brent crude oil climbed back above $100 a barrel, trading at $101, up 1% on renewed doubts about the US-Iran ceasefire.
Housing market slows as borrowing costs rise
The UK housing market is showing signs of cooling as higher energy prices feed into inflation expectations and push up borrowing costs. Data from mortgage lender Halifax showed that average house prices fell by 0.1% in April, following a 0.5% decline in March, taking the typical property value to £299,313. Annual house price inflation slowed to just 0.4%, down from 0.8% in the year to March.
Amanda Bryden, head of mortgages at Halifax, said: “After a strong start to the year, recent global developments have added a greater degree of uncertainty to the outlook. In particular, higher energy prices have fed into inflation expectations, prompting markets to reassess the path for interest rates – a shift that has already pushed up borrowing costs for many buyers.” She noted that the cost-of-living is once again front of mind for households, leading to more caution about planned property moves. However, she added that the market continues to display resilience, supported by wage growth that outpaces house price inflation and the fact that most existing homeowners are on fixed-rate mortgages, insulating them from short-term rate changes.
Regional data from Halifax reveals a stark north-south divide. Northern Ireland leads UK annual house price growth at +7.6%, with average prices of £224,851. Scotland recorded strong growth of +4.0% to £222,448, while the North East of England saw prices rise 4.5% to £183,445 and the North West grew 3.4% to £248,945. Wales saw annual growth slow to 0.7%, with an average price of £230,952. By contrast, southern markets continue to fall. The South East led declines with a 2.0% year-on-year drop to £383,044, and London saw average values fall by 1.4% to £536,051.
