(Investorideas.com
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stocks issues market commentary from deVere Group.
Starmer and Reeves need to be honest about potentially imminent fuel
shortages, the likelihood of UK inflation spiking again, how the
pound could come under increasing pressure, and the growing risks
now facing the UK bond market.
This is the harsh warning from Nigel Green, CEO of global financial
advisory giant deVere Group, as Prime Minister Starmer today convenes energy majors, shipping
groups, and insurers to assess the fallout from escalating tensions
in the Middle East and the threat to flows through the Strait of
Hormuz.
He says: “The UK is more exposed than most advanced
economies, and that reality needs to be communicated clearly.
“Around 35–40% of our energy is imported, and we remain
reliant on global markets for both crude and refined products. Any
disruption to key routes feeds directly into domestic prices and
economic stability.”
Oil has climbed to around $115 a barrel, while European gas prices
are moving higher again. Roughly a fifth of the global oil supply
passes through the Strait of Hormuz.
Pressure on that corridor is already affecting flows, raising the
risk of delays, higher insurance costs, and constrained supply
reaching international markets.
Nigel Green says the consequences for inflation are immediate and
broad-based.
“Energy costs transmit quickly through the system. Fuel,
transport, food production, and manufacturing all feel the
impact. If oil and gas remain elevated, inflation in the UK will
inevitably rise again, and it’ll do so faster than many
forecasts currently assume.”
The UK has only recently emerged from a period of double-digit
inflation driven in large part by energy prices. A renewed surge
would arrive at a time when household finances remain stretched and
businesses are operating with limited margin for additional cost
increases.
He continues: “Chancellor Rachel Reeves is working with an
economic framework that depends on inflation easing and stability
returning. A sustained energy shock challenges that directly.
Higher input costs feed through to consumers, reduce real incomes,
and complicate the outlook for growth.”
Currency markets are also highly sensitive to these dynamics.
“The UK imports a significant share of its energy. As prices
rise, more foreign currency is required to pay for those imports.
This widens the trade deficit and places downward pressure on
sterling, particularly in periods of heightened uncertainty,”
Nigel Green explains.
He adds: “If disruption through the Strait of Hormuz persists,
investors should expect greater volatility in the pound and a
clear risk of further weakness.”
The contrast with other major economies is becoming more pronounced.
“The US benefits from substantial domestic energy production
and is better insulated from global supply shocks. Energy
exporters gain directly from higher prices.
“The UK sits in a more vulnerable position, facing higher
costs without the same level of protection. That leaves UK
assets more exposed in a rising energy price environment.”
Nigel Green warns that the implications extend directly into the UK
government bond market.
“Gilts are particularly exposed here. If energy prices push
inflation higher again, yields will need to rise to reflect that.
“With UK debt already close to 100% of GDP, higher borrowing
costs become a serious issue.
“The UK relies heavily on overseas investors to finance its
deficit. If those investors see a weaker pound combined with
rising inflation expectations, they will demand higher returns or
reduce exposure. This creates additional fragility in the gilt
market.”
Financial markets are beginning to respond, but not fully.
“Equities are showing signs of strain, particularly in
sectors sensitive to input costs, and bond markets are adjusting
to shifting inflation expectations. But broader positioning still
reflects an assumption that oil prices will ease and conditions
will stabilize.”
The situation in the Middle East remains volatile, with increased
military activity and ongoing threats to infrastructure adding to
uncertainty around supply.
Political signalling is also contributing to market instability, as
US president Donald Trump has indicated a willingness to take
control of Iranian oil assets while also suggesting a deal remains
possible.
This combination of factors is reshaping how energy markets should
be understood.
“Supply and demand still matter, but political decisions,
security risks, and control over transit routes are now central
drivers of pricing. This increases volatility and raises the
likelihood that elevated prices persist.”
“The implications for the UK are far-reaching.”
Nigel Green concludes: “Starmer and Reeves need to level
with the country.
“The UK is highly exposed to global energy shocks, and the
risks are rising.
“Investors, businesses, and households should be preparing
for higher inflation, pressure on the pound, and increased
volatility in gilts if disruption continues.”
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