Bold warning: global markets wobble as Middle East conflict drives energy prices to multi-year highs. The ongoing war in the region has unsettled financial markets for a second day, sending oil and gas prices higher while global stocks retreat and bets on an early UK rate cut shrink.
In London, the FTSE 100 slumped about 2.6%, dropping roughly 280 points to around 10,501, marking what could be its worst day in nearly a year. The mood is tied to the Chancellor’s spring forecast due at 12:30 GMT, with most equities finishing lower.
Asian markets mirrored the risk-off tone, with Japan’s Nikkei down about 3.1% and South Korea’s Kospi plunging over 7%.
Brent crude rose about 5.5% to $82.02 a barrel, while UK gas prices surged dramatically—up 30% to 148p per therm after Monday’s 44% jump—reaching levels not seen in years.
Economists warn that higher energy costs could complicate Rachel Reeves’s inflation and growth goals for the UK, threatening a quicker recovery from the cost-of-living squeeze.
The pound weakened to near a three-month low against the US dollar, trading around $1.33, down roughly 0.8% on the day.
In the crypto and precious metals space, bitcoin slid about 2.5% and gold retreated 1.1% after a brief safe-haven rally earlier in the week.
UK government borrowing costs rose as well, with two-year gilt yields ticking higher and the longer-end yields also increasing. The market now prices a much lower chance of a rate cut at the Bank of England’s March meeting—about 29%, down from 80% the previous week.
The divergence adds pressure on borrowers hoping for cheaper credit and on Reeves, who has touted past rate reductions as part of managing inflation.
Oil and gas price spikes risk pushing UK inflation higher again, potentially undoing recent progress that saw inflation easing to around 3% in January.
Energy analyst Jess Ralston emphasized that the UK remains underprepared for another energy shock, warning that the path ahead remains uncertain as households and businesses navigate post-crisis debt and lingering energy-market effects.
Market expectations for US policy also shifted, with traders dialing back anticipated Federal Reserve cuts. What began the week as about 61 basis points of anticipated cuts has moved to roughly 46 basis points, implying fewer or smaller rate reductions this year.
Pensions and investment expert Jemma Slingo noted that elevated oil and gas prices could act as an inflationary windfall, complicating rate-cut timelines and broader economic plans.
The IMF cautioned that trade disruptions, energy-price spikes, and market volatility tied to the Middle East crisis add to an already fragile global outlook. The ultimate impact will hinge on how long the conflict lasts and how widespread its effects become."
