FTSE 100 slides as oil spikes and US‑Iran tensions hit markets
Higher oil prices and fresh US‑Iran clashes sent the FTSE 100 lower and drove UK government bond yields to their highest level since 2005.
FTSE 100 slipped further on Wednesday as oil prices climbed for a third straight session, adding fresh pressure to an already jittery bond market. Brent crude hovered around $95 a barrel, the strongest level since mid‑July, after the United States launched new strikes against Iranian targets in the Strait of Hormuz.
Oil price surge fuels market sell‑off
The escalation follows a flare‑up between the US and Iran, with President Donald Trump saying the attacks were retaliation for Tehran’s alleged mining attempts and a prior strike on a US base. Trump warned of a larger response, a stance that has kept shipping routes through the Middle East under close watch.
UK bond market under strain
British government bonds, or UK gilts, joined the global rout, with the two‑year yield touching an 18‑year high of about 5.2 per cent and longer‑term yields climbing to 5.9 per cent in early trade. The surge adds roughly £6bn to the cost of servicing the nation’s debt, a figure highlighted in a recent analysis of the gilt market.
“We are now just two months away from the US mid‑term elections, and President Trump shows no sign of scaling back the war in Iran to win votes, even though the conflict is not popular at home,” Kathleen Brooks, research director at XTB, said. “This could trigger volatility in the coming weeks, as investors fret that elevated oil prices could be here to stay.”
The bond sell‑off could eclipse the start of Andy Burnham’s first parliamentary session as Prime Minister, with the new leader set to face his inaugural Prime Minister’s Questions later today.
Analysts expect the market’s nervousness to linger until the geopolitical flashpoint eases or oil prices retreat from the $100 mark. In the meantime, traders will watch for any further escalation in the Middle East and for signals from central banks on how they plan to respond to higher inflation pressures.
For more on the impact of rising gilt yields, see UK gilt yields hit an 18‑year high. Details on the new administration’s economic agenda can be found in Burnham’s triple helix growth plan.
