For the data behind the commentary, download our latest UK Investment Report.
DE-ESCALATION
On 16th June the United States and Iran signed a 60-day framework agreement providing for free passage through the Strait of Hormuz in exchange for the suspension of ‘Project Freedom’ naval interceptions. The Israel–Hezbollah ceasefire was renewed on 19th June, and on 23rd June, Iran lifted some retaliatory sanctions while the US eased restrictions on Iranian humanitarian trade.
The truce is already being tested after Iranian attacks on two commercial vessels in the Strait – including a Qatari flagged Super Tanker. Nevertheless, for now escalation has been contained.
Nevertheless, the market response to improvements has been swift. Brent crude has fallen from a $126/bbl mid-May war peak to around $72 at the 26th June close, briefly trading below the $70 level recorded in late February before the conflict began.
UK NBP gas remains around 15% above pre-conflict levels, reflecting both summer storage demand and the slower normalisation of LNG flows. Sterling has softened against USD as a result of the Dollar’s safe haven status but remains resilient against the Euro.
The implication is that the worst case energy and rates scenario has receded substantially, although tail risk remains.
SENTIMENT SHIFTS
While the improvements to the situation in Iran, and the prospect of a relatively straightforward transferal of power from Starmer to Burnham should provide greater clarity for the remainder of the year, market conditions have proved difficult for dealmaking over the last few months.
Volumes have been relatively weak, with some price softening occurring. According to the MSCI Monthly Index for May, all property total returns were 0.3%, down from 0.4% in April, taking returns to 6.1% on an annual basis. Weaker returns in May can be attributed to a 0.1% fall in capital growth and 0.3% contraction in yield impact. Nevertheless, income has remained robust, and that should underpin confidence in the market with more clarity on both the domestic and geopolitical situation.
For more information, including on the interest rate decision see our Economy and Housing Marketbeat.
