UK benchmarks set for weekly loss as Mideast war hits rate-cut hopes

• Oil prices exceeded $100 per barrel due to Iran's closure of the Strait of Hormuz, boosting energy stocks like BP and Shell but raising inflation fears that could keep UK interest rates elevated
• Money markets erased March rate cut expectations, with BofA, Goldman Sachs, Standard Chartered, and Morgan Stanley all pushing back their BoE easing forecasts to June or later
• HSBC and Standard Chartered shares fell 1% each due to their significant Gulf region exposure, while UK GDP stalled in January with weak services performance

UK Benchmarks Set for Weekly Loss as Mideast War Hits Rate-Cut Hopes

Market Performance:

London's main stock indexes declined Friday, heading for a second consecutive weekly loss. The FTSE 100 fell 0.3% while the mid-cap FTSE 250 dropped 0.7% by 1058 GMT. The downturn reflects broader global market weakness amid escalating Middle East tensions.

Key Driver:

The Middle East conflict, approaching two weeks with no de-escalation signs, has heightened inflation concerns and clouded the Bank of England's monetary policy outlook. U.S. President Trump has escalated rhetoric against Iran, while Tehran maintains its closure of the Strait of Hormuz, raising fears of a prolonged energy supply disruption.

Sector Movements:

Energy stocks bucked the trend, with the UK energy index gaining 1.3%. Oil majors BP and Shell rose 1.5% and 1.3% respectively as crude prices exceeded $100 per barrel. Conversely, miners plunged 2.1%, making them the day's worst performers.

Economic Data:

Britain's economy stalled in January with flat GDP growth and weak services performance, compounding investor concerns alongside rising energy price risks.

Monetary Policy Impact:

Money markets have eliminated expectations for a March rate cut from the Bank of England. Major banks including BofA, Goldman Sachs, Standard Chartered, and Morgan Stanley have postponed their BoE rate cut forecasts to June or later due to energy-driven inflation risks. Analysts warn the BoE may shelve rate cuts for the remainder of the year to prevent pound depreciation.

Banking Sector:

HSBC and Standard Chartered each declined 1%, reflecting their significant exposure to Gulf markets and concerns over their Middle East expansion strategies amid regional instability.