FTSE 100 posts best month since Iran conflict as Middle East disruption eases

London's stock market finished July with its strongest month since the Middle East conflict erupted five months earlier, a rebound that masks the deeper economic strain rippling through the country. The FTSE 100 climbed roughly 4 percent over the month, reaching record highs and closing near 10,840 points—a sharp recovery from the 6.7 percent plunge it suffered in March when the US and Israel launched attacks on Iran. Yet beneath the headline gains, the real cost of geopolitical disruption was becoming impossible to ignore.

At UK petrol pumps, prices had climbed to 160 pence per litre, the highest point since the conflict began. A family filling a typical car now paid £88, a sum that rippled through household budgets already stretched by months of economic uncertainty. The RAC, the motoring organization, warned that diesel was climbing faster still and could reach 185 pence within weeks. These weren't abstract market movements—they were the price of summer holidays, school runs, and the basic logistics of living in Britain.

The airline industry bore the brunt most visibly. International Airlines Group, which owns British Airways, saw pre-tax profits collapse by a third to £852 million in the second quarter, down from £1.3 billion a year earlier. Fuel costs alone had jumped by more than 400 million euros despite the airline's efforts to hedge against price spikes. Chief executive Sean Doyle acknowledged the pressure by announcing that British Airways would cut 200 jobs from its head office while simultaneously recruiting more frontline staff—a recalibration that spoke to the company's attempt to survive on thinner margins.

At Morrisons, the Bradford-based supermarket, the picture was grimmer still. The company reported losses of £926 million for the year ending October 2025, nearly 50 percent wider than the previous year. The chain had shed 4,912 jobs as it abandoned its newspaper delivery service, trimmed head office staff, and closed dozens of McColls convenience stores. Net debt had fallen to £3.2 billion since the private equity takeover in 2022, and interest costs had dropped by 29 percent, yet the company remained trapped in a squeeze between rising costs and competitive pressure.

Across the eurozone, inflation ticked upward to 2.9 percent in July, with core inflation—the measure excluding volatile energy and food prices—rising to 2.5 percent. Economists warned that August figures would likely be significantly worse, as the full impact of renewed oil price spikes from the Iran conflict would filter through. The European Central Bank was widely expected to raise interest rates by a quarter percentage point in September, a move that would further tighten borrowing conditions for households and businesses already bracing for harder times ahead.

The recovery in stock prices told only part of the story. While investors had regained confidence that the worst of the geopolitical shock had passed, ordinary people were paying more to fill their tanks, more to heat their homes, and facing the prospect of higher borrowing costs. The FTSE 100's climb back to record levels masked a landscape where millions of households were being forced to choose between fuel and other necessities, where major employers were cutting staff to preserve profitability, and where the underlying drivers of inflation—energy prices tied to Middle East conflict—remained beyond anyone's control.