After nearly four months of conflict talks between the US and Iran continue, but the Strait of Hormuz has largely reopened and oil tanker traffic is recovering. The closure of the Strait had choked off oil exports, pushed up commodity prices, and contributed to more supply chain disruptions. The conflict also contributed to months of market volatility as traders processed implications for the global economy and likely central bank responses. 

Where are we now? In early July, daily flows of oil through the Strait were back above 10 million barrels. Crude exports from Saudi Arabia were running at around 90 per cent of the pre-war baseline, with a similar supply rebound in the UAE. This has fed through to a sharp decline in the price of Brent Crude, which (as of 6th July) has retreated below late February levels (chart 1) and stands roughly 40% lower than the peak in April. New forecasts from Citigroup suggest Brent could have further to fall this year, prices could potentially fall to $60 per barrel by the end of the year as the reopening of the Strait could lead to a glut next year. 

Other volatile metrics, which spiked in recent months, have also moved in the right direction, but more gradually. Household inflation expectations for the year ahead eased back to 3.8 per cent in June, after the initial shock of the conflict saw expectations soar to 5.4 per cent. This is, however, still higher than pre-conflict, prior to which household predictions for inflation had been moderating. Lingering concerns about price pressures are also still depressing consumer confidence levels – the latest GfK reading for June remains four points lower than February as households remain pessimistic about their finances in the year ahead and remain cautious about discretionary spending. 

In somewhat better news for the incoming Chancellor, gilts yields have also edged down after hitting their highest level since 2008 in May, when markets were pricing in multiple rate hikes by the Bank of England. At the last Monetary Policy meeting in June, Bank Rate was held at 3.75 per cent, with only two members preferring a 25-basis point rise. A softer growth outlook, cooling labour market, and easing inflation expectations could mean the Committee don’t see a strong case for a rate rise this year (assuming no further upside surprises in the inflation data). However, we’re not back to where we were in February, when it was more a question of when a rate cut would happen. This feels firmly off the table for now.

Following months of speculation after the Labour party’s poor performance at May’s local elections, Prime Minister Starmer confirmed he would step down as party leader and make way for leadership contest/coronation of a new Prime Minister. The candidate everyone is talking about is Andy Burnham, mayor of Greater Manchester and recent winner of a by-election, which saw him return to the House of Commons. 

The challenges facing a new PM and cabinet are little changed from those that have plagued previous leaders – an economy struggling to get out of first gear, precarious public finances and tensions around key spending priorities, unresolved questions about the UK’s relationship with Europe (and the rest of the world), and the thorny issue of immigration. Mr Burham recently set out his policy stall, which he said would change the way the country is governed. 

Headlines from his speech highlighted priorities including greater devolution of power and resources from Whitehall (unsurprisingly), greater public control of essential services and utilities, more housebuilding (again) and rebalancing education with parity of esteem between university and other technical qualifications. There’s also an indication that cost-of-living support might be an early policy priority, but crucially (from a market perspective) there would be no abandonment of fiscal rules. 

The market reaction was muted. While this is important there are other stakeholders that will need to be satisfied with the plan. Business confidence, for example, has been hammered by political uncertainty, subdued confidence in the demand outlook, the rise in national insurance contributions, and the recent consequences of the Middle East conflict. The latest data from the ONS Business Insights and Conditions survey show that businesses of all sizes have little confidence the UK business environment will create favourable conditions for investment over the next 12 months (chart 2). 

Across businesses in all sizebands (by number of employees) the proportion of firms with low or no confidence that the business environment will be supportive of investment in the year ahead outweigh those with a positive view. This is also true across industry sectors, with manufacturing, hospitality, and professional services having a particularly negative view.

Given the role of greater investment, especially in areas such as new technology, shoring up confidence and certainty across the business constituency will be a key job for the new PM and team. We have seen some policies signalling intent to support growth and investment in the private sector – industrial strategy, a new business growth service, for example. It’s far from clear these have cut through the other challenges business have faced in recent years. A more stable geopolitical environment will only be a good thing for businesses, but it would be unhelpful to see activity take another pause ahead of the next autumn budget. 

In the last three months, the unemployment rate ticked down to just under five per cent. There was a small drop in the rate amongst 18-24 year olds, but it remains higher than that seen through the past two years. There’s also some regional variation with the South West, North West, Scotland and Wales reporting a rise in unemployment compared with the previous three months. The data also show an increase in inactivity, pointing to some move from unemployment out of the labour market.

Total pay growth in the year to April also held at 4.4 per cent, in part driven by the timing of bonus payments and public sector pay rises. In contrast regular pay growth in the private sector fell back to 2.9 per cent – the slowest pace of growth since Covid lockdowns were still in place. 
In line with cautious business survey that indicate tepid hiring intentions, vacancies continue to drift lower (chart 3), continuing the trend seen since the end of last year. The number of vacancies was the lowest since April 2021 and the drop in the three months to May was most pronounced across the smallest businesses (less than ten employees).

The vacancy to unemployment ratio appears to have stabilised in recent months and is now below pre-pandemic levels. Whilst the data doesn’t fully capture the firms’ responses to the impact of the Middle East conflict, going into the second half of 2026 the labour market looks to be continuing to ease rather than a more material deterioration. 

Several forecasters have predicted the unemployment rate to tick up to near 5.5 per cent by the end of the year, we will likely see this revised down slightly in the coming months. In addition, a looser labour market may also reduce MPC worries of second round effects from higher prices feeding through to punchier wage growth later in the year.  

It’s been a scorching start to the summer and England have progressed to the quarter-finals of the World Cup. While this might not be the best recipe for national productivity (particularly given the timing of some of the matches), it must surely be a welcome combination for the nation’s pubs. 

The industry has had a torrid time with the pandemic, rising energy and labour costs, and cost of living pressures hitting discretionary spend. Data from the British Beer and Pub Association show that between 2020 and 2025 more than 2,500 closed their doors and the pace of closure has accelerated in 2026 Q1 with nearly two pubs a day shutting up shop. 

We also see the impact of this in our card spending data (chart 4), aside from the usual festive spikes, spending in pubs has been trending down over the past three years. With betting markets favouring England to make it past Norway to make the semis, a run to the finals on the 19th July, could provide a welcome boost for the hospitality sector this summer.