The FTSE 100 ended a difficult week firmly in negative territory on Friday, dragged lower by surging oil prices and growing unease over artificial intelligence investment returns.
The blue-chip index closed down 34.67 points, or 0.3%, finishing the session at 10,690.36, capping a weekly decline of 1.8%.
The FTSE 250 managed a modest gain of 25.68 points, or 0.1%, to close at 24,237.39, though it still recorded a weekly fall of 1.2%.
The AIM all-share fared worse, shedding 4.26 points, or 0.6%, to end the day at 746.67, with a weekly loss of 3.3%.
European markets were similarly subdued, with the CAC 40 in Paris falling 0.4% and the DAX 40 in Frankfurt sliding 0.8% by the close.
In New York, trading was mixed, with the Dow Jones Industrial Average down 0.8%, the S&P 500 easing 0.1%, and the Nasdaq Composite edging up 0.2% after Thursday’s sharp 2.6% plunge.
Bank of America strategists flagged deepening concern over AI capital expenditure, noting “mounting signs of markets becoming increasingly unwilling to fund the AI infrastructure build-out.”
BofA said it remains “concerned about the AI capex outlook, not just because of rising funding costs squeezing incremental returns,” adding that competitive pressures could lead to “disappointing AI monetisation just as happened during past large-scale capex cycles.”
Brent crude surged above $115 per barrel on Friday for the first time since early May, driven by supply concerns stemming from the ongoing Middle East conflict.
Reports earlier in the week suggested the US and Israel may be drawing up plans for renewed attacks on Iran, with Iran signalling it is prepared to retaliate, stoking further market anxiety.
Brent was quoted at $116.34 per barrel at the London close, up sharply from $111.18 at the same point on Thursday.
Trade Nation analyst David Morrison warned that while a pullback in oil prices is “well overdue, there is nothing to stand in the way of higher prices,” unless the US and Iran reach a settlement.
Morrison added that “according to US news reports, it sounds as if the Trump administration is preparing to renew attacks on Iran sometime after the US midterms which will be held in less than a fortnight.”
Barclays analyst Emmanuel Cau noted that investors “are increasingly having to contemplate a higher for longer oil backdrop, keeping inflation concerns elevated and maintaining the upward pressure on rates and broader financial conditions.”
On the FTSE 100, energy stocks were among the biggest beneficiaries of the oil price surge, with BP (BP.L) rising 4.4%, Ithaca Energy climbing 3.9%, and Shell (SHEL.L) advancing 3.7%, ahead of both BP and Shell reporting third-quarter results next week.
Rolls-Royce (RR.L) was the biggest blue-chip faller, dropping 7.6%, hit by geopolitical uncertainty, high jet fuel prices, and a weak market reaction to earnings from French peer Safran, which fell 10%.
Analysts at Citigroup said Safran reported “an in line set of numbers with guidance reaffirmed,” but suggested that “in a market where the mood has shifted negatively more recently, the shares may be slightly soft on this.”
Smith and Nephew (SN.L) bucked the trend, rising 1.7% after the Financial Times reported that talks with Johnson and Johnson’s DePuy Synthes unit “collapsed at the last minute” over a leadership disagreement involving former chief executive Namal Nawana and current chief executive Deepak Nath.
Domestic economic data offered a mixed picture ahead of next week’s Budget, with the S&P Global flash composite PMI rising to 53.1 in October from 52.0 in September, its best reading in eight months, while retail sales volumes fell 0.4% in September and GfK’s consumer confidence index dropped 11 points to minus 24.