The ongoing conflict in the Middle East has sent shockwaves through financial markets, with UK gas prices soaring to a three-year high and the FTSE 100 suffering its worst day in 11 months. The month-ahead UK gas price jumped 30% to 148p per therm, adding to a 44% surge on Monday, bringing it to nearly double last week's levels.
The FTSE 100 closed 2.75% lower on Tuesday, its steepest drop since Donald Trump's tariff announcement in April 2024. Almost all listed stocks fell, mirroring declines across global indices. Japan's Nikkei dropped 3.1% and South Korea's Kospi plunged 7.2%.
Brent crude oil rose a further 6% to nearly $83 a barrel, while the pound fell to $1.33, its lowest in almost three months. UK government borrowing costs also rose, with yields on two-year, 10-year and 30-year bonds surging by around 10 basis points.
The market turmoil has drastically reduced expectations of a Bank of England interest rate cut. Money markets now see only a 29% chance of a rate reduction at the next meeting on 19 March, down from 80% last week. Economists warn that rising energy prices could jeopardise Chancellor Rachel Reeves' plans to control inflation and revive economic growth.
Jess Ralston, head of energy at the Energy and Climate Intelligence Unit, said: 'The energy crisis commission warned that the UK remained dangerously underprepared for another energy crisis. Nobody knows exactly how the next few weeks will play out, but with homes and businesses still facing the debt and after-effects of the last gas crisis, people will understandably be concerned.'
The International Monetary Fund noted that disruptions to trade, surges in energy prices, and financial market volatility have added to an already uncertain global environment, though the ultimate impact will depend on the extent and duration of the conflict.
