London stocks closed in the red on Monday as surging oil prices stoked fresh inflation fears and investors weighed a fiscal pledge from UK Chancellor John Healey ahead of next month’s Budget.
The FTSE 100 (^FTSE) ended the session down 8.96 points, or 0.1%, closing at 10,822.13, while the FTSE 250 fell 78.03 points, or 0.3%, to 24,506.68.
The AIM all-share also dipped, closing 0.41 points, or 0.1%, lower at 799.50 as the cautious mood spread across London’s markets.
European markets were mixed, with Paris’s CAC 40 closing up 0.3% while Frankfurt’s DAX 40 (^GDAXI) ended the day 0.3% lower.
Brent crude surged to 97.89 dollars a barrel on Monday afternoon from 95.18 dollars at Friday’s London close, following US strikes on Iranian tankers and threats from Tehran to declare a new restricted zone outside the Strait of Hormuz.
The US said it launched strikes on three Iranian oil tankers over the weekend, destroying one, in retaliation for attacks on US Navy warships, deepening the crisis in the Middle East.
London-listed oil majors Shell (SHEL.L) and BP (BP.L) benefited directly from the price surge, rising 1.3% and 1.2% respectively as investors rotated into energy stocks.
Dan Coatsworth, head of markets at AJ Bell, said: “Concern about inflationary risks is only exacerbated by the latest moves in energy markets, as Brent crude briefly ticked over 97 dollars per barrel. The US and Iran continue to exchange strikes as a resolution to the crisis in the Middle East remains elusive.”
Average diesel prices in the US climbed to a record of 5.9015 dollars a gallon on Monday, according to motorists’ association AAA, around 30 cents higher than a week earlier, as Gulf refinery damage disrupted supplies.
Chancellor John Healey used his first major speech since taking over at the Treasury to say the economy was “turning a corner”, pledging to meet the government’s fiscal rules at the upcoming Budget.
Speaking in Coventry ahead of the first budget since Prime Minister Andy Burnham entered 10 Downing Street, Mr Healey said: “The prime minister and I are in lockstep in our commitment to meeting the fiscal rules at the upcoming budget, to balancing the books with a buffer to protect against uncertainty.”
Centrica led the FTSE 100 risers, climbing 2.2%, while Standard Life rose 2.0% after reporting stronger-than-expected half-year results, with total income surging to £21.73 billion from £8.60 billion a year earlier.
Next rose 1.1% after winning its appeal against a landmark equal pay ruling that the retailer had warned would threaten the viability of a number of its stores.
On the FTSE 250, Hollywood Bowl Group was the session’s worst performer, losing 6.0% after Deutsche Bank cut its price target to 358p from 376p, though it retained a “buy” rating on the tenpin bowling operator.
Oxford BioMedica rose 5.8% at the other end of the mid-cap index, while B&M European Value Retail gained 3.4% after RBC raised its price target to 275p from 240p with an “outperform” rating maintained.
Among smaller companies, Kropz plunged 33% after the phosphate producer launched an “urgent operational review” of its Elandsfontein asset, blaming lower sales prices and rising costs on the US-Iran war.
United Oil & Gas jumped 24% after naming Donal Meehan, who has upstream experience at Exxon Mobil, as its new operating chief, giving investors fresh confidence in the company’s direction.
Semiconductor wafer manufacturer IQE rose 3.0% after reporting a 43% jump in revenue and a narrowing loss in the first half, with the company saying trading was ahead of internal expectations.
IQE also rode a broader technology rally linked to optimism around OpenAI’s newest model, GPT-6, also known as Astra, which the ChatGPT maker said it would begin rolling out to selected customers.
Coatsworth added: “Many of the headlines from the dominant AI theme remain positive, and that supported gains for South Korean stocks, but investors are having to contend with the potential for an interest rate hike at the US Federal Reserve’s meeting later this month.”