Retail sales stagnate in Britain in March; oil price jumps after Israeli strike on Iran – business live | Business

Falling airline shares are dragging European stock markets to their lowest level in a month this morning.

The main airlines are mainly lower this morning, hit by the higher oil price (which pushes up fuel costs) and fears of travel disruption if the Middle East conflict escalates.

Here’s the situation presently:

Kathleen Brooks, research director at XTB, says geopolitics are taking centre stage in the markets again:

Nearly a week to the day when Iran sent drones and missiles into Israel, Israel has retaliated and sent a missile into Iran. The initial reports caused a large uptick in the oil price. Brent crude jumped nearly $4 per barrel on the news above $90 per barrel, but it has since retreated as the details about the extent of the attack emerge.

The missiles struck targets in Western Iran, and no nuclear sites have been damaged. Air space around Iran had been closed, but reports say it is now back open. Thus, we can assume this will not be a barrage of attacks and instead a one punch retaliation for Iran’s move last Saturday. As Jeremey Bowen of the BBC put it, the clandestine war between the two foes is now out in the open. So far, the attacks have been restrained, which is causing some relief to markets. However, the risk premium across asset prices is likely to rise as the future remains unclear. Will Iran and Israel leave each other alone now that they have had their tit-for-tat reprisals? Or does this continue, with well-planned ‘attacks’ that are designed to cause the least amount of civilian damage and are more a show of what could be possible?

While this is obviously preferable to an all-out war, it is a risky strategy. One mistake that causes casualties or hits an unexpected target could trigger an escalation in reprisals and a deeper, more dangerous situation in the Middle East. This is why volatility is likely to stick around, especially as it comes at a delicate time for financial markets as they recalibrate expectations for interest rate cuts.

Shares are dipping in Europe as traders digest events in the Middle East overnight.

In London, the FTSE 100 blue-chip share index is down 38 points or 0.5% at 7838 points.

IAG, the parent company of British Airways, is the top faller, down almost 4%, followed by easyJet (-2.5%).

Engineering firm Rolls-Royce, which makes and services jet engines, are down 1.7%.

European markets are also lower, with the pan-European Stoxx 600 down 0.6%.

Although sales volumes (the amount of stuff people bought) were flat in March, the first quarter of 2024 has been a brighter time for retailers than the last quarter of 2023.

Sales volumes increased by 1.9% in the three months to March 2024 when compared with the previous three months, the ONS reports.

That brings the retail recession to an end, declares Capital Economics this morning.

Alex Kerr, their assistant economist, explains:

Despite the softer-than-expected data, retail sales still added almost 0.1 percentage points to real GDP growth in Q1. Moreover, the prospect of interest rate cuts and the boost to real household incomes, from falling inflation and the 2p cut to national insurance in April, suggest the recovery in consumer spending will continue throughout this year.

Retail sales across Britain stalled in March, as the cost of living squeeze continues to hit spending, new data shows.

The Office for National Statistics has just reported that British retail sales volumes stagnated in March, following modest growth of just 0.1% in February (revised up from stagnation).

That’s weaker than expected; economists polled by Reuters had expected sales growth of 0.3% in March.

While spending on motor fuel and non-food goods rose, there was a drop in spending at department stores, on food, and online.

On an annual basis, sales volumes rose 0.8% over the year to March 2024, weaker than the 1% expected.

That leaves them 1.2% below their pre-Covid-19 level in February 2020.

ONS senior statistician Heather Bovill says:

“Retail sales registered no growth in March. Hardware stores, furniture shops, petrol stations and clothing stores all reported a rise in sales. However, these gains were offset by falling food sales and in department stores where retailers say higher prices hit trading.

“Looking at the longer-term picture, across the latest three months retail sales increased after a poor Christmas.”

Last night, ratings agency S&P Global lowered Israel’s credit rating, before the reports of explosions in Iran.

S&P cut Israel’s long-term ratings to A-plus from AA-minus, citing Heightened Geopolitical Risk, and left its outlook on negative.

S&P says:

“We forecast that Israel’s general government deficit will widen to 8% of GDP in 2024, mostly as a result of increased defense spending”

S&P Global predicts that a wider regional conflict will be avoided, but that the Israel-Hamas war and the confrontation with Hezbollah appear set to continue throughout 2024.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Reports of powerful explosions in Iran overnight have pushed up the oil price, as investors fear escalation in the Middle East crisis.

Brent crude surged back over $90 amid reports of explosions near the Iranian city of Isfahan, with US officials confirming that Israel has carried out military operations against Iran.

Oil jumped on fears that the conflict had entered a new phase, while stocks fell.

Stephen Innes, managing partner at SPI Asset Management, says:

Reports of an Israeli aerial bombardment targeting a key nuclear facility in central Isfahan have sparked a significant shift out of risk assets and into safe-haven investments.

Metal and soft commodity prices – such as wheat, soybeans and corn – also rose, on fears of shipping disruption and higher energy input costs.

Higher oil and food prices, and shipping costs, would add to inflation, undermining efforts to bring the cost of living crisis under control.

But… markets are calming down somewhat, with Brent crude now easing back to $89/barrel (up 2% today) as Iran appears to play down the incident.

A senior commander of Iran’s Army Siavosh Mihandoust has said that no damage was caused in the overnight attack, according to state TV, adding that the noise heard overnight in Isfahan was due to air defence systems targeting a “suspicious object”.

Diplomat Carl Bildt, co-chair of the European Council on Foreign Relations, says this is important, and that the key is to break the dangerous cycle of escalation.

Our brilliant Middle East Crisis liveblog has all the details:

Also coming up today

Some lenders to Thames Water are facing the prospect of losing up to 40% of their money if the troubled supplier is nationalised, with much of its £15.6bn debt ending up on the public books.

The Guardian revealed last night that a government blueprint, codenamed Project Timber, is being drawn up; it would turn Britain’s biggest water company into a publicly owned arm’s-length body.

Some lenders to its core operating company could lose up to 40% of their money under the plans, which which is at an advanced stage. More here:

There’s also excitement in the crypto currency world, where bitcoin is about to undergo a halving. This will cut the rewards for bitcoin miners in half, to reduces the pace at which new bitcoins enter the market.

The agenda

• 7am BST: UK retail sales for March

• 2pm BST: IMF/World Bank Spring Meeting continues in Washington DC

• 3.15pm BST: Bank of England deputy governor Dave Ramsden on panel about lessons to learn from post-pandemic inflation