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.