The FTSE 100 closed lower on Wednesday as renewed fighting between the US and Iran pushed oil prices sharply higher and dashed hopes for a lasting peace in the Middle East.
The FTSE 100 closed down 41.21 points, or 0.4%, at 10,332.30, while the FTSE 250 ended down 192.07 points, or 0.8%, at 23,186.29.
The AIM All-Share fell 11.08 points, or 1.4%, to 807.24 as the broader sell-off extended across UK equity markets.
A drone strike on a passenger terminal at Kuwait’s international airport killed one person and wounded dozens of others, despite a purported ceasefire being in place.
David Morrison, senior market analyst at Trade Nation, said investors pulled back following reports of fresh hostilities, with Iran accused of launching drones and ballistic missiles at targets in Kuwait.
“All were successfully intercepted and destroyed according to US Central Command,” Morrison observed, noting the US military also carried out what it described as “self-defence strikes” on Iranian targets.
“All this suggests that the Strait of Hormuz won’t be opening any time soon, and that is something of a worry for Europe, the UK and many Asian Pacific countries,” he continued.
Brent crude for August delivery traded at 97.37 dollars a barrel on Wednesday, up from 94.68 dollars at the London equities close on Tuesday.
The OECD warned that the war has hit economic growth prospects worldwide, with a more severe shock likely should no effective ceasefire be agreed before 2027.
Global economic growth is forecast to slip to 2.8% this year if Gulf energy exports return to pre-conflict levels in the third quarter, the group of 38 industrialised countries said.
“The longer the disruptions last, the larger the economic and social costs become,” said OECD chief economist Stefano Scarpetta, adding that many countries risked falling into recession.
A drop in investment spending, “including in energy-intensive AI,” would likely push up unemployment, Scarpetta noted, underscoring the breadth of potential damage from prolonged conflict.
In European equity markets, the CAC 40 in Paris ended down 1.3% and the DAX 40 in Frankfurt closed 1.3% lower, mirroring the gloom in London.
In New York, the Dow Jones Industrial Average was down 0.7%, the S&P 500 fell 0.5%, and the Nasdaq Composite dipped 0.7%.
US private sector employment rose by 122,000 jobs in May, according to the ADP National Employment Report, beating the FXStreet-cited consensus forecast of 117,000.
UK services sector activity slipped into contraction for the first time in more than a year, with the S&P Global UK services PMI falling to 49.3 points in May from 52.7 in April.
ING said a June interest rate rise in the UK now looks unlikely, though a July hike remains possible if energy flows through the Strait of Hormuz do not improve.
On the FTSE 100, oil price gains boosted BP (LON: BP) and Shell (LON: SHEL), both rising 1.7%, while Fresnillo dropped 3.7% and Anglo American fell 2.8% as metals prices declined.
Miner Rio Tinto (LON: RIO) fell 2.8%, further pressured by a downgrade to “underperform” by RBC Capital Markets.
WPP (LON: WPP) fell 5.1% after Goldman Sachs initiated coverage with a “sell” rating, citing limited visibility on a return to healthy organic growth under the current asset mix.
B&M European Value Retail (LON: BME) soared 15% on hopes its turnaround is gaining traction, despite pre-tax profit falling 47% to £227 million for the financial year ending March 28.
Chief executive Tjeerd Jegen described it as a “difficult” year, with profits falling due to a “challenging market and execution issues.”
Boohoo (LON: BOO) surged 17% after reporting gross merchandise value rose 0.5% year-on-year in the first quarter to May 31, with May GMV growth accelerating to around 8%.
Peel Hunt noted this was the first positive quarter for Boohoo in “several years,” compared to a 30% GMV drop in the prior financial year’s first quarter.
Thursday’s corporate calendar includes full-year results from CMC Markets, Mitie Group, and Ondine Biomedical, while construction PMI reports and US weekly jobless claims data are also due.