London shares retreated on Thursday as rising crude oil prices, fuelled by a lack of progress in US-Iran diplomatic talks, stoked inflation fears and pushed government bond yields higher.
The blue-chip FTSE 100 index fell 0.05% to 10,700.05 points by mid-morning, while the more domestically focused FTSE 250 midcap index slipped 0.60%.
Oil prices extended their gains after climbing 4% in the previous session, with no concrete sign of a breakthrough in negotiations between Washington and Tehran.
Energy giants were among the few bright spots in London trading, with BP (BP.L) gaining 1.9% and Shell (SHEL.L) adding 1.4% as higher crude prices boosted their outlook.
Industrial stocks proved to be the heaviest drag on the index, with Rolls Royce and BAE Systems (BA.L) falling 2% and 1.3% respectively during the session.
British banks also came under pressure, with HSBC and Standard Chartered both dropping over 1% each as rising yields and inflation concerns weighed on sentiment across the sector.
Homebuilder Vistry was among the session’s worst performers, tumbling 6.3% after the company lowered its annual profit expectations and announced it would take a £470 million hit from its ongoing strategic overhaul.
In contrast, Raspberry Pi was a standout gainer, jumping 7.7% after the single-board computing company reported higher first-half revenue and pretax profit, reassuring investors about its growth trajectory.
UK gilt yields rose in line with global bond markets, with the benchmark 10-year gilt yield touching a more than one-week high of 5.38%, keeping fixed income markets firmly in focus.
Bank of England Deputy Governor Clare Lombardelli added to the cautious tone, saying that interest rates will likely have to rise if energy prices stay elevated, barring clear evidence of a weaker economy.
Traders are now fully pricing in at least one 25-basis-point rate hike by the Bank of England this year, according to data compiled by LSEG, reflecting the shift in market expectations.
Reports also emerged that British finance minister John Healey may accept a smaller fiscal buffer to reduce the scale of tax rises in next month’s budget, after investors signalled the gilt market would not be spooked by a more modest headroom target.
Investors were additionally watching the Trump-Xi summit, an event seen as largely symbolic despite efforts to project stability between both sides amid deep and ongoing rivalry.
Insurer Standard Life and technology services provider Computacenter shed 4.3% and 3% respectively as their shares traded ex-dividend, adding further weight to an already subdued session.