The London stock market slammed into reverse yesterday as mounting tensions in the Middle East and political turmoil at home rattled investors.
On the first day of trading following the Bank Holiday, the FTSE 100 closed down 1.4 per cent, or 144.82 points, at 10,219.11.
The sell-off came after the price of crude jumped from around $105 a barrel to over $115 a barrel on Monday before settling at close to $110 yesterday.
The spike in the oil price – as clashes in the Strait of Hormuz cast further doubt over the ceasefire between the US and Iran – fuelled fears of interest rate hikes to counter the threat of higher inflation.
The prospect of as many as three rate hikes in the UK this year pushed up government borrowing costs with 30-year gilt yields hitting the highest level since 1998.
Investors are also uneasy about the prospect of Keir Starmer being ousted by a more Left-wing Labour leader if the party does badly in tomorrow’s local elections – further driving up borrowing costs.
Market jitters: On the first day of trading following the Bank Holiday, the FTSE 100 closed down 1.4%, or 144.82 points, at 10,219.11
Susannah Streeter, chief investment strategist at investment platform Wealth Club, said: ‘The reignition of hostilities in the Middle East has fired up oil prices again, keeping investors on edge about the duration of the conflict.
‘The FTSE 100 is in a downbeat mood, as wariness rises about how difficult the complex situation will be to resolve.
‘Investors are also on edge as fears of interest rate hikes rise, and there’s fresh political uncertainty in the mix ahead of key local elections on Thursday.’
The FTSE 100 peaked at a record of close to 11,000 on the eve of the Iran war, having gained close to 10pc in the first two months of the year.
The index crashed back below the 10,000 mark in March, however, as conflict raged across the Middle East, before clawing back much of its losses on hopes of a peace deal.
But peace once again looks a long way off, with disruption to shipping through the Strait of Hormuz – through which a fifth of global oil and gas supplies passed before the war in the Middle East broke out – set to continue.
Dan Coatsworth, head of markets at broker AJ Bell, said the Footsie is under pressure ‘as the situation in the Middle East heads in the wrong direction from a market perspective’.
He added: ‘There has been no progress towards a reopening of the Strait of Hormuz, and exchanges of fire between the US and Iran suggest the ceasefire is being stretched to within breaking point.
‘The oil price largely told the story as it ticked back towards the $115 per barrel mark.’
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