UK stock indexes drop amid global selloff

The blue-chip FTSE 100 closed down 1.2%, having hit a record high in the prior session, while the domestically oriented FTSE 250 index dropped 1.4%

UK stock indexes dropped amid a global selloff on Monday, as an escalating war in the Middle East fuelled a jump in oil prices and drove investors towards safe-haven assets.

Oil prices surged around 7% after retaliatory Iranian attacks disrupted shipping in the crucial Strait of Hormuz following the weekend’s attack by Israel and the U.S.

While British oil companies such as Shell gained 1.9% and defence companies like BAE Systems jumped 6%, other equity sectors, particularly banks and travel companies, came under heavy selling pressure as investors braced for travel and economic disruptions.

The blue-chip FTSE 100 closed down 1.2%, having hit a record high in the prior session, while the domestically oriented FTSE 250 index dropped 1.4%.

If the issues persist, then the market will start to worry about new inflationary pressures and that could lower expectations for near-term interest rate cuts, said Dan Coatsworth, head of markets at AJ Bell.

Banks including HSBC, Barclays and Lloyds Banking Group declined between 2.5% and 4.2%, as surging oil prices fuelled concerns about a resurgence of inflation and a potential dent to the economy.

British government bond yields rose as investors trimmed their expectations for Bank of England interest rate cuts. Traders were pricing in a 52% chance that the BoE will cut rates later this month, down from about 78% last week.

BoE policymaker Alan Taylor said that it was too soon to tell how the conflict in the Middle East would impact Britain’s sluggish economy.

British Airways operator IAG slipped 5.5% after the airline said on Saturday it had cancelled flights to Tel Aviv and Bahrain until March 3. The broader FTSE 350 travel & leisure index slid 4.3%, with hotels and cruise operators among the major decliners.