The FTSE 100 is expected to open lower on Monday, with futures pointing to a decline of 19 points, equivalent to a fall of 0.18 per cent.
The modest expected drop follows a turbulent week shaped by escalating hostilities in the Middle East, as Iran and the United States exchanged military blows.
The Houthis also threatened to establish a permanent new front in the conflict, targeting shipping lanes through the Red Sea and raising alarm across global markets.
Brent crude oil prices surged to a two-month high of $100 per barrel on Thursday, a level not seen for several months, before easing slightly into the Friday close.
Despite widespread investor caution across many of the world’s leading markets, the FTSE 100 demonstrated resilience, posting a gain of 1.3 per cent across the course of last week.
US President Donald Trump announced over the weekend that he is pausing strikes on Iran while an Omani delegation pursues urgent talks aimed at securing a deal to manage shipping transit through the Strait of Hormuz.
The diplomatic effort suffered a serious setback on Sunday after an oil tanker exploded following contact with a naval mine in the Strait, according to Iran’s semi-official Tasnim news agency.
The renewed tensions in the Middle East are expected to weigh heavily on the deliberations of the Bank of England’s Monetary Policy Committee, which meets on Thursday and is widely anticipated to vote to hold interest rates.
Thomas Pugh, chief economist at RSM UK, said he believes oil prices will “largely” steer the path of interest rates over the next year.
“If they remain close to 100 dollars per barrel over the summer, a September rate hike would move firmly onto the table, with another in the winter likely,” he said.
The Bank of England faces a difficult balancing act, weighing persistent inflationary pressures from energy markets against the risk of slowing economic growth.
A sustained period of elevated oil prices would significantly complicate the Monetary Policy Committee’s ability to ease monetary conditions in the months ahead.
Markets will be watching closely for any signals from policymakers regarding the outlook for borrowing costs and how the committee views the evolving situation in the Middle East.