What Iran ceasefire means for fuel prices, inflation and interest rates in the UK

Following the announcement of the US-Iran ceasefire and the initiative to reopen the Strait of Hormuz, oil prices fell, stocks rose and the dollar fell.

This has raised hope that the global energy crisis could be short-lived and UK consumers could avoid the worst of the feared fuel price inflation, which is causing pump prices to soar.

Oil fell 14 percent to $93.93 per barrel after Iran agreed to open the Strait of Hormuz as part of a two-week ceasefire agreement, rising to well above $100 as the war continued.

Capital Economics said in a note to clients: “There is still a lot of uncertainty: pause [in the conflict] It depends on Iran reopening the Strait of Hormuz, but it is unclear what form this will take (for example, whether it will impose a toll).

“This, in turn, will influence how much (if at all) energy prices will fall. And time will tell whether this is a real step towards lasting peace. But this announcement is the clearest sign that the end of the conflict and the associated economic disruptions is near.”

Investors hailed another TACO (Trump Always Chickens Out) moment. Michael Brown of financial services company Pepperstone said: “Yes, President Trump has once again blown the whistle when it comes to the ‘deadline’ for attacks on Iran’s power plants and bridges, in fact this is the 4th extension of that deadline. But this time it looks different, the President noted that the 2-week period is a ‘bilateral ceasefire’ and that the Strait of Hormuz will be reopened by the Iranians during this time. An important step in the normalization of global commodity flows.”

We see how the latest developments affected UK markets on Wednesday, but always come with the possibility of rapid change.

Fuel

Talk of fuel rationing needs to calm down, at least for now. After the ceasefire agreement was announced, oil fell 14 percent to $93 per barrel.

Jet fuel prices, which were around £65 before the attacks on Iran began, are now over £150. Airlines have warned that travel will be more expensive for some time as they increase fares.

Market analysts say that even if there is a longer-term agreement with Iran, there will be a contraction in jet fuel.

The UK energy price cap is set at £1,641 until 30 June. The assumption was that it would bounce up when it reset, but there was hope today that it might fall instead.

In its first quarter results today, Shell reported that liquid natural gas and gas-to-liquid production fell to between 880,000 and 920,000 barrels of oil equivalent per day, down from 948,000 barrels in the last three months of December.

However, gas prices fell sharply by 17 percent on the hope that the distribution of Liquid Natural Gas supply would ease. The price of LNG is still a third higher than before the war.

Oil prices are also expected to remain high due to the unpredictable nature of the fuel market.

Exchanges

Shares rebounded and the FTSE rose 2.5 per cent to 10,606, up 26 points. The biggest gainers were WPP and Imperial Brands, global companies hit by trade fears.

IAG, owner of British Airways, increased by 10 percent and jet engine manufacturer Rolls-Royce increased by 11 percent.

But BP and Shell fell 7 percent as their profits depend heavily on the price of oil. Big oil investors could see their hopes of making big profits from a protracted conflict dashed.

Richard Hunter of Interactive Investor said: “A sense of relief was felt overnight in Asian markets, where much of the region is reliant on energy imports. Japan’s Nikkei 225 index gained 5 per cent given its particular dependence on such imports, while broader indices rose as the relief rally continued and investors re-entered the investment fray on the back of a return to some form of normality.”

Inflation

Unfortunately, damage has already occurred in this area. As the price of oil has been high for the last six weeks, this will be reflected in energy bills, food, manufacturing and transport costs – and in reality all of the inflation will come from rising prices.

However, there will be some hope that if the conflict continues for another month, things will not be so bad; But of course, this two-week ceasefire leaves the future far from certain in this respect.

The Food and Drink Federation has already warned that food inflation will reach 9-10 per cent by the end of this year and overall inflation in the UK will approach 4 per cent in the second half of 2026; But the real amount won’t be known until firms see how much of the cost increases they can absorb, how much their energy bills have risen, and – obviously an important point – how low oil prices will be again even if the ceasefire continues.

Most experts do not expect a return to the mid-$60s a barrel prices we saw before the conflict.

“What investors can see more clearly is that inflation is barreling towards us whether or not the Strait of Hormuz reopens to global traffic in the coming days,” said Danni Hewson, head of financial analysis at AJ Bell.

“This is likely to erode already fragile consumer confidence, which will impact spending decisions in the coming months, especially as ‘nice to have’ people are just starting to return to their shopping carts.”

Interest rates and mortgages

While the Monetary Policy Committee is preparing to vote on Bank of England interest rates at the end of the month, no immediate change is expected here. The smart money could take another cautious approach that would result in an overall hold at 3.75 per cent, while monetary leaders can wait and see how this reflects on the UK economy. However, pressures resulting from the underperformance of the economy in question as well as the increasing unemployment rate continue.

However, higher rates should be out of the question at least for now, although he notes that money markets have recently priced in four increases in a year and two as recently as Tuesday. However, this expectation diminished after the ceasefire; As evidenced by the UK’s two-year gilt yield falling by almost 8 per cent overnight.

“Markets in the UK still see another rate hike as likely, although that sentiment has eased significantly in recent sessions,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Given lingering growth concerns, we still view rate hikes as unlikely and a holding pattern is more likely for now. Further moves in this direction, and perhaps an eventual return to interest rate cut expectations, could be supportive of both stock markets and gold.”

In terms of mortgages, even if interest rates are not cut, swap rates (at which mortgage loans are largely priced) could fall from recent highs to give hope that rates will drop on some deals — but as one industry expert recently said IndependentIt may be several months before we see mortgage rates below 4 percent again.

Meanwhile, Halifax’s House Price Index showed March was a month when average property prices fell, swap rates rose and the best mortgage deals quickly disappeared from the market following the start of the Middle East conflict.

“This first month of data is a poor indicator of where the market will go next,” said Jonathan Hopper, CEO of Garrington Property Finders. “The reason for this distance is that financial markets move much faster than the real estate market. As the last 24 hours have shown, extreme fluctuations are an almost daily occurrence in financial markets.

“However, last month’s rise in the cost of fixed-rate mortgages has cooled buyer demand, as has the general sense of uncertainty caused by the war.

“As the spring surge in listings increases the number of homes for sale that are already abundant, many sellers are being forced to lower their asking prices or accept lower offers from buyers who increasingly hold all the cards.”