London stocks are expected to open higher on the first trading day of August, with FTSE 100 futures pointing to a gain of 25 points. This follows a 3.5% increase for the index in July, which saw it hit a series of all-time intraday highs, peaking at 10,989.45 on Friday. The positive sentiment is largely driven by hopes of a diplomatic breakthrough between the US and Iran, which has led to a significant drop in oil prices.
Brent crude fell by 5.1% to $83.41 a barrel after US President Donald Trump announced that planned US strikes against Iran had been cancelled, and fresh talks would commence on Monday. Trump stated that the proposed deal would include the "immediate, complete and total" reopening of the Strait of Hormuz and an end to Iran’s nuclear threat. Jim Reid at Deutsche Bank noted that markets welcomed the prospect of a "diplomatic off-ramp," with US Treasury yields subsequently falling by three to five basis points.
The potential reopening of the Strait of Hormuz is a key factor for the UK economy. EY UK chief economist Peter Arnold predicts that if the strait reopens by the end of September, UK GDP growth could reach 0.9% this year and 1.2% in 2027. However, an extended closure into 2027 could raise inflation and potentially push the economy into contraction. The UK manufacturing PMI for July came in at 51.9, down from 52.5 in June, but S&P Global noted "further positive signs" with upturns in production, new business, and new export orders, alongside easing cost inflation and supply chain disruption.
