LONDON: London’s main indexes closed lower on Friday and logged their third consecutive weekly decline, as the escalating Middle East war and surging oil prices deepened inflation fears and cemented expectations for the Bank of England to hike interest rates.
The blue-chip FTSE 100 closed down 1.4 percent, while the mid-cap FTSE 250 was down 1 percent. Both indexes also fell for a third straight session.
Oil prices rose more than 1 percent on the day as the three-week-old Iran war showed no signs of abating, with the US preparing to send thousands of additional troops to the Middle East in coming weeks.
British energy stocks slipped 1.7 percent, but were still around record-high levels.
Aerospace and defence stocks and banking shares weighed the most on London’s benchmark, falling 2.5 percent and 2 percent, respectively.
The BoE held rates at 3.75 percent at Thursday’s policy meeting. Its warning that inflation posed a bigger risk than slowing growth pushed traders to price in a roughly 70 percent chance of a 25-basis-point hike by April and up to three quarter-point increases by year-end.
Barclays, J.P. Morgan and Morgan Stanley now see a higher chance of BoE hikes as early as April.
Fresh fiscal concerns emerged after Britain borrowed far more than expected in February, partly due to volatile debt-interest payments, just as the Iran conflict drove up funding costs and fuelled calls for higher public spending.
“Rachel Reeves must feel like she’s been squeezed between a rock and a hard place as the current geopolitical instability rams home the need to spend more on defence but also leaves ordinary workers at risk of another inflation burn,” said Danni Hewson, head of financial analysis at AJ Bell.
Among other movers, Smiths Group plunged 9.8 percent, in its steepest single-day fall since 2021, after the engineering group missed half-year organic revenue forecasts.