The FTSE 100 slipped on Thursday as escalating military conflict between the United States and Iran weighed heavily on investor sentiment across global markets.
The index fell 0.37% by 07:25 GMT, extending losses from the previous session, while Germany’s DAX declined 0.22% and France’s CAC 40 slipped 0.21%.
Sterling remained broadly steady against the US dollar, trading at $1.3535 as currency markets absorbed competing signals from geopolitical risk and domestic economic strength.
Fresh data from the Office for National Statistics showed the UK economy expanded 0.7% in the three months to May, well ahead of economists’ forecasts for 0.5% growth.
Annual GDP growth accelerated to 1.3%, representing the fastest pace recorded in 13 months, with the services sector contributing a 0.3% rise in output.
On a monthly basis, the economy grew 0.1% in May after a 0.1% contraction in April, providing a broadly positive picture of underlying economic resilience.
Despite the upbeat data, geopolitical developments dominated market sentiment as military activity around Iran intensified overnight.
A spokesman for Iran’s military headquarters warned that “all infrastructure in the region” would be “crushed under the steel blows” of Iran’s armed forces if Washington proceeded with threats against Iranian infrastructure.
The warning followed remarks from US President Donald Trump, who said Washington would “knock out all their power plants… all their bridges” unless Tehran returned to negotiations.
US forces reportedly carried out strikes around Tehran and in Semnan province, while Iran responded with missile and drone attacks targeting Bahrain, Jordan and Kuwait.
Iran’s Revolutionary Guard said it had struck a US base in Jordan following what it described as an American attack near a children’s cancer hospital in Ahvaz.
Jefferies strategist Mohit Kumar warned that shipping through the Strait of Hormuz “has slowed down significantly,” adding that Iran currently appears unwilling to negotiate.
Kumar said the escalation differs from previous confrontations, which had been “meant as an objective to gain an upper hand in negotiations and to eventually de-escalate the situation.”
He added that Iran is unlikely to “give up its claim of sovereignty over the Strait that easily” and expressed doubt over whether “there is a unified leadership in Iran that can take that decision.”
Jefferies said it was “keeping risk levels low” while still expecting “eventually we will get a deal even if it’s a fudge,” though the firm believes the standoff could continue “for a few weeks.”
US Vice President JD Vance described the recent attacks as part of a “delicate diplomatic dance,” while President Trump said separately, “We’ll find out whether or not we settle with them or we just finish it off.”
Brent crude slipped 0.38% to US$84.63 per barrel and West Texas Intermediate eased 0.08% to US$79.54, with gold futures falling 0.55% to US$4,029.27 an ounce.
Among individual stocks, Crest Nicholson (LSE:CRST) warned operating profit is likely to come in at the lower end of its FY2026 guidance and confirmed an extension to a key banking covenant waiver.
Ocado (LSE:OCDO) said it continues to pursue new retail partnerships in the United States while maintaining its target of becoming cash flow positive.
TotalEnergies (LSE:TTE) said higher oil and gas prices linked to Middle East tensions are expected to support second-quarter earnings, while Premier Foods (LSE:PFD) reported a 4% rise in first-quarter branded sales.
Frasers Group (LSE:FRAS) declined to issue guidance for FY2027, citing uncertainty around takeover activity involving Hugo Boss and Accent Group, and SSE (LSE:SSE) reaffirmed earnings guidance while announcing the appointment of former National Grid chief executive John Pettigrew to its board.