UK equities and major continental indexes fell on Thursday as investors grappled with continued uncertainty over the Middle East conflict and its potential economic fallout. U.S. President Donald Trump said Iranian negotiators were "begging" for a peace deal, while Iran earlier in the week signalled it had no intention of directly negotiating with the U.S., comments that underscored persistent geopolitical tension.
At 12:31 GMT the blue-chip FTSE 100 was down 1.4%. Currency markets reflected risk aversion, with the British pound weakening 0.3% against the dollar to 1.3328. Stocks in Germany and France moved lower as well, with the DAX falling 1.6% and the CAC 40 down 1.1%.
OECD cuts UK growth forecast
The Organisation for Economic Co-operation and Development in Paris trimmed its 2026 growth forecast for the UK to 0.7% from a prior projection of 1.2% in its interim economic outlook. The OECD attributed the reduction to the effects of disrupted energy supplies and elevated commodity prices arising from the US-Israel war with Iran. In the same update the policy body forecast UK inflation would accelerate to 4% this year, up from 3.4% in 2025, leaving inflation well above the Bank of England's 2% target.
The OECD also set out expectations for monetary policy, anticipating the Bank of England would hold its key interest rate at 3.75% before cutting by a quarter-point in early 2027 as inflation pressures abate. The organisation expects consumer price inflation to ease to 2.6% the following year.
Corporate headlines: mixed corporate updates
Among individual UK-listed companies, Next PLC reported higher annual earnings but cautioned that the US-Israeli war against Iran is likely to raise costs and weigh on demand. Next posted group profit before tax of 1.158 billion, up 14.5% from 1.011 billion a year earlier, with group sales increasing 10.8% year-over-year to 7 billion. Earnings per share were 744.2 pence. The shares rose following the results.
Transport operator FirstGroup PLC issued a pre-close trading statement noting that performance at both its First Bus and First Rail businesses met expectations. The company revised its net debt guidance for fiscal 2026 to 135 million to 145 million, an improvement from the 140 million to 150 million range it provided in December, a revision the company attributed in part to the Tootbus acquisition.
In the financial services sector, UBS upgraded Close Brothers Group plc to Buy from Neutral and set a price target of 555 pence. The stock has fallen roughly 25% year-to-date, the report noted, reflecting investor concerns about potential motor finance redress costs, a slow-to-recover loan book, declining income and profits, and higher restructuring charges.
Electronics retailer Currys PLC said Chief Executive Alex Baldock will step down after eight years to take up a new external role. The board will begin a formal search for his successor and Baldock will remain in post during that process. Currys shares moved lower after the announcement.
Market context and immediate implications
The combination of heightened geopolitical risk and a downgraded growth outlook for the UK appeared to be the dominant drivers of Thursday's market moves. The OECD's assessment that the UK faces higher inflation and disrupted energy supplies directly ties macroeconomic forecasts to the developing conflict. Meanwhile, company-level updates were a secondary influence on UK equity performance, with investors reacting to both stronger-than-expected results and management changes.
For now, market participants will likely monitor geopolitical developments, energy price trajectories, and any further official revisions to macroeconomic projections or central bank guidance for clearer signals on the path for growth and inflation.