The FTSE 100 suffered its worst day in 11 months, closing 2.75% lower as Middle East tensions escalated following US-Israeli airstrikes on Iran. Asian markets also plunged, with Japan’s Nikkei down 3.1% and South Korea’s Kospi falling 7.2%.
Oil and gas prices continued to surge, with Brent crude jumping 6% to nearly $83 a barrel. UK month-ahead gas prices rose 30% to 148p a therm, reaching a three-year high and nearly double last week’s levels. The rise threatens to derail Chancellor Rachel Reeves’s plans to control inflation and boost economic growth.
The pound fell 0.8% against the US dollar to $1.33, its lowest in three months. Bitcoin dropped 2.3%, while gold, which had surged on Monday, fell nearly 5% to $5,072 an ounce. UK government borrowing costs rose, with yields on two-year, ten-year and 30-year bonds all increasing by around 10 basis points.
Money markets now see only a 29% chance of a Bank of England interest rate cut at its March meeting, down from 80% last week, as inflation fears mount. The rise in energy prices is expected to push UK inflation above its current 3% level. Experts warn the UK remains vulnerable to another energy crisis, with households and businesses still recovering from the previous one.
