Bank of England holds rates as Iran war drives oil to 2022 highs; China exports rise

The Bank of England is expected to keep interest rates on hold at noon, as policymakers assess the economic fallout from the Iran war. Economists will be looking for any clues on future rate policy in the statement and the subsequent press conference. The nine-member rate-setting panel, led by central bank governor Andrew Bailey, could hint at rate hikes in the months ahead if the conflict in the Middle East — where a shaky ceasefire is in place — drives inflation higher. For now, the monetary policy committee is expected to keep the bank’s main rate at 3.75%, while one or two members could vote for a quarter-point hike as a preemptive move to ward off higher inflation.

Before the US and Israel began their attacks on Iran on 28 February, the central bank had been expected to cut borrowing costs this year, as inflation was predicted to fall back toward its 2% target during the spring. The war has since upended the bank’s predictions. Sandra Horsfield, an economist at Investec, said the “repercussions of the conflict are still keenly felt and uncertainty about how the situation could evolve also remains high”.

Oil prices jumped a further 7% on Thursday to the highest since March 2022, after a report that the US is considering military options against Iran to break the deadlock in stalled negotiations to end the war. Brent crude futures for June are now 5.3% higher at $124.58 a barrel, after hitting $126.41 a barrel earlier. Both oil benchmarks are on track for their fourth month of gains. Brent has more than doubled since the start of the year while WTI is more than 90% higher.

China’s factories increased production for a second month in April to ship goods early to buyers worried the Iran war will drive up costs, with new export orders at their highest level in two years. The official purchasing managers’ index for manufacturing dipped to 50.3 from 50.4 in March, but held above the 50 mark that separates growth from contraction. It was better than economists had expected. The sub-index for new export orders rose to 50.3, the highest since April 2024, from 49.1 in March. Zhiwei Zhang, chief economist at Pinpoint Asset Management, said: “It will be interesting to see if the official trade data confirm the resilience of exporters in coming months. The outlook for the export sector is very important for China’s economy, as domestic demand has been weak.”

Germany’s economy, Europe’s largest, surprised with 0.3% growth in the first three months of the year, defying the adverse impact of the Iran war – for now at least. This was faster than the 0.2% growth seen in the fourth quarter of last year, according to official figures. The Federal Statistical Office (Destatis) reported that both household and government spending in the first quarter were higher than in the previous quarter, while exports also rose. Carsten Brzeski, global head of macro at ING, said: “Almost exactly one year after the new German government – under chancellor Friedrich Merz – came into office, today’s data suggests that the German economy is better than its reputation implies. However, it would be risky to assume that today’s performance can simply be continued. The war in the Middle East and soaring energy prices, combined with a lack of structural reform and clear strategy for how to restore competitiveness, do not bode well for Germany’s growth outlook.”

In Germany, unemployment rose more than expected in April, above the 3 million mark. The jobless figure, which is adjusted for seasonal effects, increased by 20,000, according to official figures. Economists had expected a rise of 4,000. Andrea Nahles, head of the labour office, said: “There is still no sign of a turnaround in the labour market. The spring upturn remains weak in April as well.”

The Irish energy distributor DCC has rejected a £4.95bn takeover proposal from US private equity groups, saying it undervalued the company. Shares in the London-listed company, which is based in Dublin, fell 5.1% to £55.80. The cash proposal of £58 a share from KKR and Energy Capital Partners represented a premium of 8% to DCC’s closing price before the offer was made public on Wednesday. Under UK takeover rules, the consortium has until 10 June to make a firm offer or walk away.

Air France-KLM has reported a smaller first-quarter loss than expected, but is scaling back capacity because of the US-Israeli war with Iran and soaring jet fuel costs. The Franco-Dutch carrier expects its fuel bill to rise by $2.4bn this year. Capacity (i.e. more seats) will now increase by 2% to 4% this year, rather than 3% to 5% as previously planned. Air France-KLM chief executive Ben Smith said: “While fuel price increases are not yet reflected in the results we present today, they are expected to weigh on the coming quarters.”

France’s economy did not grow at all during the first quarter, with households spending less and a slump in exports. GDP was unchanged between January and March, after 0.2% growth in the fourth quarter, according to figures from the French statistics office Insee. Meanwhile, Spain’s economic growth slowed to 0.6% in the first quarter from 0.8% expansion in the previous quarter, preliminary data from the National Statistics Institute showed.

Premier Inn owner Whitbread is to cut about 3,800 jobs in the UK and Ireland as it resets its five-year business strategy, after tax rises and pressure from a US activist investor. The cuts will affected about 12% of Whitbread’s 30,000-strong workforce in the UK and Ireland working in its Beefeater and Brewers Fayre restaurants. Whitbread was one of the biggest fallers on the FTSE 100, down 4.4%. The cuts come after Whitbread began a fresh review of its business in November, a year after it first announced its five-year plan, after it was hit by higher costs in the chancellor’s budget. Whitbread warned after Rachel Reeves’s 2025 budget that tax changes would cost it an additional £50m this year.