UK equities drop as oil surge intensifies inflation concerns

UK stocks closed lower for a ‌second straight day on Thursday after Iran stepped up attacks on oil and transport facilities across the Middle East, driving a surge in crude prices that stoked concerns about rising inflationary pressures.

The blue-chip FTSE ​100 closed down 0.4%, while the mid-cap FTSE 250 fell 0.9%.

Oil prices , climbed back to $100 ​after Iranian boats appeared to have attacked two fuel tankers in Iraqi ⁠waters and the country’s supreme leader said the closure of the vital Strait of Hormuz ​should continue.

The FTSE 350 energy index .FTNMX601010 jumped 2.6% to a record high as crude ​oil prices gained almost 9%.

UK is seen as more exposed than many other Western countries to an energy price shock due to UK’s stretched public finances and its heavy reliance on imported gas.

“The longer the ​disruption goes on, the greater the impact on energy prices and in turn ​global inflation. This then has implications for interest rates too,” said Danni Hewson, head of financial analysis ‌at ⁠AJ Bell UK.

Money markets have abandoned expectations of early Bank of England easing, with futures no longer pricing in a March cut, instead seeing a roughly 40% chance of a quarter-point rise in borrowing costs in December.

A survey from RICS showed UK’s housing market has lost steam as ​demand faded from buyers ​concerned about the ⁠implications of the Middle East conflict and possible increases in mortgage rates on the back of energy price rises.

Banks were among the ​worst-hit sectors in Europe as investors feared a hit to ​the economy ⁠from inflationary pressures. An index of UK banks dropped 4.8%.

HSBC  this week closed its Qatar branches while Standard Chartered  evacuated its Dubai office and told staff there to work from ⁠home, ​in a sign of how the conflict has rattled ​their day-to-day activities.

TP ICAP rose 10.7% to the top of the mid-cap index after the inter-dealer broker posted a ​3.6% rise in annual pre-tax profit.