The Guardian·United Kingdom·Friday, September 25, 2026 at 10:46 AM

Iran war drives UK diesel price to near record high, and makes interest rate rise ‘hard to avoid’ – business live

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Graeme Wearden, Mark Sweney

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

UK consumer confidence has surprisingly hit a two-year high this morning, but the recovery could be faltering as inflation climbs.

Research group GfK has reported that its Consumer Confidence Barometer rose to -13 in September, a rise of one point compared with August, with people more optimistic about their personal finances and the wider economy.

That’s the highest level since August 2024, just after the last general election, and higher than forecast.

Encouragingly, this is also the first time since summer 2024 that consumer confidence has risen for three months in a row.

But less cheeringly, consumer confidence is still in negative territory, and there are signs that the recovery could be faltering.

A chart showing UK consumer confidence — Photograph: GfK

Over the summer, UK businesses reported a “Burnham bounce” after the new prime minister took the wheel from Sir Keir Starmer, and announced measures including a cap on bus fares and a discount on business rates for pubs, clubs and live music venues.

Bloomberg suggests GfK’s data shows this recovery is running out of steam, as higher energy costs push up inflation.

Neil Bellamy, consumer insights director at GfK, explains:

The return of higher inflation removes one of the strongest positives seen in previous months. So, while the headline score continues to improve, confidence is still firmly in negative territory. With inflation, energy and fuel prices rising, could we soon see consumer sentiment falter?”

GfK reports that consumers are less willing to buy big-ticket items this month, and more keen to save money instead.

Bellamy adds:

The only measure to fall this month was the Major Purchase Index, down one point, which comes as we head into the important Golden Quarter for retailers. The Savings Index rose five points, which, although not used in our headline score, may indicate that those who can are thinking of building a financial buffer.

The agenda

10.15am BST: Bank of England governor Andrew Bailey appears on a panel at the Monetary Economics Conference
1.30pm BST: US durable goods orders data
3pm BST: University of Michigan’s US consumer sentiment index

Key events

Newsflash: the cost of diesel in the UK has risen close to a record high.

New data from the RAC shows that the average price of diesel has risen to 198.32p a litre.

That puts it on the brink of the previous record of just over 199p a litre, set in 2022 – a level which could be breached in the next few days.

RAC head of policy Simon Williams says:

The UK now has the most expensive diesel in Europe by 12p a litre ahead of Finland and the Netherlands.

“The record of 199.09p will almost certainly be surpassed over the weekend as retailers continue to pass on the increases they’re seeing when they buy new supply. Petrol is now averaging 173.6p – its highest price in more than four years. Petrol has risen nearly 12p in September and more than 40p since the Iran War began. Diesel is up 14.5p this month alone and 55p since 28 February.

“Sadly for drivers, there appears to be no end in sight to high prices at the pumps as the cost of a barrel of oil hit $106 having been around that $100 mark for the last two weeks. A significant drop in the price of oil is badly needed but this seems unlikely without the US and Iran striking a deal.”

Prices have been driven up globally by the Iran war, which has restricted oil supplies from the Middle East. Recent attacks on Russian refineries by Ukraine have also hurt supplies of diesel.

BoE governor Andrew Bailey at a monetary policy conference in Oxford today Photograph: Bank of England

The Bank of England is using artificial intelligence technology to assess how its communications will be interpreted by markets.

BoE governor Andrew Bailey told this morning’s Monetary Economics Conference at St Hilda’s, Oxford, that Bank staff are using an LLM (large language model) to assess the minutes of the Monetary Policy Committee’s meetings.

The governor says:

I have very mixed views on this, to be honest. It is helpful. But I think ‘where are we going with this?’ But it is helpful.

Bailey explains that the LLM will produce a ‘summary’ view, and say ‘is this what you thought you were doing?’.

He cites a recent debate at the MPC over whether to use the word ‘cautious’ or ‘careful’ in the minutes, during which the governor jokes that he ‘lost the will to live’.

(But such debates are necessary because central bank language is closely assessed by investors, who will increasingly be using their own AI models to rapidly analyse the Bank’s communication).

Bank of England governor Andrew Bailey then hints that UK interest rates may need to rise if the Iran war doesn’t end soon.

He tells his audience in Oxford that the Bank has made “a strong point” of saying that the longer high energy prices continue, the harder it becomes to leave borrowing costs unchanged.

Bailey says:

We’ve made it quite clear… that it’s going to go harder to maintain that stance, the longer we have high energy prices.

Bank of England governor Andrew Bailey is warning that we are living through an era of “big supply shocks”.

He’s speaking at a Monetary Economics Conference in Oxford, and explains that we are in a world of very big negative supply shocks, and quite repeated supply shocks

AI, though, could be a “positive shock”, though, Bailey suggests.

Morgan Stanley has changed its Bank of England interest rate call on Friday, and now predicts it will hike borrowing costs in November and February.

Morgan Stanley had previously expected no hikes for the foreseeable future, but it now warns that the newsflow in the commodity markets is not improving.

Their analysts also expect a slowdown in growth at the turn of the year.

Bruna Skarica and Fabio Bassanin told clients this morning:

While we still think - and with a decent degree of conviction - that any signs of an improvement in the supply in oil and refined products would leave the BoE on hold from here, it is challenging to maintain a prolonged hold as a modal call amid the recent Middle East newsflow.

GfK’s report that UK consumer confidence has risen this month is at odds with other data.

Earlier this week, data provider S&P Global reported that fears of a steep rise in mortgage payments and increasing job insecurity have sent UK consumer confidence tumbling to a three-month low.

After rising steadily for several days, UK mortgage rates have finally flattened out.

Moneyfacts reports that the average five-year fixed rate mortgage is unchanged today, at the highest since October 2023, while two-year mortgages remain at the highest since July 2024.

Here’s the details:

The average 2-year fixed residential mortgage rate today is 5.92%. This is unchanged from the previous working day.

The average 5-year fixed residential mortgage rate today is 5.94%. This is unchanged from the previous working day.

TalkTalk is scrambling to secure its future amid the threat of administration, closing in on deals to sell its consumer and broadband arms as it seeks to save 900 jobs.

The telecoms company said on Friday it is in the final stages of sealing deals to sell its consumer business as well as its wholesale operation, PXC.

“The company is now in the final stages of its sales process for the business and expects to conclude both transactions imminently.”

The UK’s fourth-largest broadband company was founded in 2003 by Charles Dunstone as a subsidiary of Carphone Warehouse. It has struggled in the highly competitive telecoms market, with its customer numbers shrinking from 4 million in 2019 to about 1.5 million.

More here:

The pound is on track for its worst week against the US dollar in three months.

Sterling has dropped by 1.2% against the dollar so far this week, as the greenback has benefited from strong economic data which spurred bets on US interest rate rises. That would be the biggest weekly fall since 11-15 June.

This morning, the pound is hovering near three-month lows against both the dollar (at $1.323) and the euro (€1.162).

Shares in aerospace manufacturer Airbus have dipped by over 1% this morning after it reported a “quality issue” in the fuselage structure of its A321neo aircraft.

Airbus said yesterday that the problem is not a safety risk, and its planes can continue operating.

Reuters reports that the defect affects about 500 aircraft, including roughly 250 already in service and 250 in production.

After a choppy day yesterday, UK goverment bonds are recovering this morning.

With prices rising, the yields (or rate of return) on both short and long-dated gilts have dropped.

Two-year gilt yields, which are used to price mortgages, are down 5 basis points (0.05 of a percentage point) to 4.85%, while 10-year gilt yields are down 2.5bps to 5.35%.

European stock markets have opened higher.

In London, the FTSE 100 share index is up 48 points or 0.46% at 10,728 points, with mining stocks and banks among the risers.

Germany’s DAX is up 0.6%, with France’s CAC 40 0.4% higher.

French president Emmanuel Macron is leading the fight against the imposition of a ban on US diesel exports.

Macron has revealed that he told Donald Trump a 90-day diesel export ban reportedly being considered by the White House was a bad idea, Politico reports.

He told a TV interview:

“I think all the experts around him and all the American refiners can only tell him the same thing.

This decision would be a bad one — not just for the rest of the world, but for the U.S. economy as well.”

Trump is reportedly considering a 90-day export ban to provide a temporary respite from high pump prices for US households before the midterm election.

As we reported yesterday, the EU has warned Donald Trump against plans to ban US diesel exports to the global market, saying the move would negatively affect Europe and the US.

Next month’s budget has the potential to either strengthen the recovery in consumer confidence, or pop it.

Pat McFadden, work and pensions secretary, has claimed that chancellor John Healey’s budget on 28 October could help to build confidence in the economy.

McFadden told the FT:

“I’ve known John for decades. I know he’ll approach this in a really responsible way.

“He will want to say to the country, the business community and the financial world that this is a stable government and Britain is a good place to invest in business and to start and grow a business.”

The oil price is dropping, following reports that the US and Iran are discussing a phased deal to reopen the strait of Hormuz.

Reuters reported that US and Iranian negotiators in New York are exploring “a phased path out of war” that would involve Tehran reopening the Strait of Hormuz and Washington lifting its economic blockade of Iran.

However, the talks “face a big obstacle” as neither side wants to be the first to surrender its leverage.

But still… Brent crude is down 1.25% today at $105.30 a barrel.

Here’s a breakdown of today’s UK consumer confidence report, showing how four of the five measures that feed into the index rose this month.