Markets slide on report US to send more troops to Middle East
Shares in London are suffering an end-of-week sell-off, following a report that the US is to send more troops to the Middle East.
The blue-chip FTSE 100 share index is now down 90 points, or 0.9%, at 9970 points, back below the 10,000-point mark. That’s its lowest level since 5 January, as the Iran war wipes out almost all of its gains during 2026.
Energy company BP (-3.6%) is among the top fallers, along with copper producer Antofagasta (-3.4%).
US bond prices are also weakening, sending bond yields higher.
Reuters is reporting that the United States military is deploying thousands of additional Marines and Sailors to the Middle East, according to three US officials, adding:
One of the officials, speaking on the condition of anonymity, said that the USS Boxer, along with the Marie Expeditionary Unit aboard, were departing the West Coast of the United States about 3 weeks ahead of schedule.
The US dollar, a traditional safe-haven in times of geopolitical tension, is strengthening, knocking the pound down by over a cent to $1.331.
Gold, silver, and platinum prices are also falling.
Key events
UK government bonds are being hit by two factors – forecast of higher inflation, and fading hopes of interest rate cuts.
Ben Seager-Scott, chief investment officer at professional servicse group Forvis Mazars, explains:
“Bonds continue to bear the brunt of the market ramifications even as equity markets attempt to take events in their stride. The main reason for this is that equity markets are looking through the noise and can likely pass through a lot of the inflation over the medium term, whilst bonds, being more mechanical in nature, are forced to wear it.
“There are two drivers of bond weakness – the expectation of higher inflation and the compensation investors demand for it, coupled with reduced chances of central bank cuts whilst inflation and uncertainty persist.
“The continued strikes on energy infrastructure clearly represent a worrying shift in the conflict driving the latest volatility.”
“The bond vigilantes are after the UK once more”
Worryingly for the UK government, its bond yields are rising fast than those of other countries, such as the US and Germany, today.
Kathleen Brooks, research director at brokerage XTB, warns that “The bond vigilantes are after the UK” again.
As 10-year borrowing costs hit their highest since 2008 this morning, Brooks cautions that the bond sell-off is a problem for the global economy, particularly the UK:
The UK is looking like an outlier, and multiple factors are causing this. Events in the Middle East are a major factor, along with the unprecedented repricing of UK interest rate expectations. More than 3 rate hikes are still expected this year from the BOE, even after Andrew Bailey attempted to calm markets [yesterday].
There are also idiosyncratic factors that make the UK more vulnerable to energy price shocks. Our blunt energy pricing mechanism will cause bills to surge later this year, and we have a Labour government that is spending more in welfare than it is bringing in through taxation, which is also spooking bond investors in the current environment.
FCA launches investigation into collapsed mortgage lender MFS
Britain’s financial watchdog has announced an investigation into a UK mortgage lending business which collapsed earlier this year.
The Financial Conduct Authority (FCA) says it has has opened an enforcement investigation into Market Financial Solutions Limited (MFS).
MFS filed for administration last month amid allegations of fraud, leaving a string of financial firms owed in excess of an estimated £1.3bn.
Earlier this week a worldwide asset freezing order has been granted against Paresh Raja, the founder and chief executive of Market Financial Solutions (MFS).
Several banks, hedge funds and “private credit” lenders face losses due to the collapse of MFS, which is accused of extending mortgages to individuals connected to Raja.
IEA chief: Politicians and markets underestimating energy shock disruption
Jillian Ambrose
Political leaders and the energy markets are underestimating the scale of the disruption caused by the biggest energy supply shock in history, according to the world’s energy watchdog.
The head of the International Energy Agency used an interview with the Financial Times on Friday to warn that it could take at least six months to restore oil and gas flows from the Gulf after a US-Israeli attack on Iran ignited war in the region three weeks ago.
“It will be six months for some (sites) to be operational, others much longer,” Fatih Birol told the newspaper (£), warning:
“People understand that this is a major challenge, but I am not sure that the depth and the consequences of the situation are well understood.”
He added that politicians and markets were underestimating the scale of the disruption, with around one-fifth of global oil and gas supplies effectively stranded in the region, the report added.
Birol has previously warned that the world is facing what could be the most severe energy crisis in history after the IEA called on the biggest release of emergency oil reserves in the agency’s 52 year history to temper rising oil market prices.
Global oil prices have climbed to highs of $119 a barrel this week, as a military escalation in the region began to take aim at some of the region’s most important energy production infrastructure. But the price of Brent crude has steadied at around $107 a barrel.
Analysts have warned that prices could surpass the all-time market high of $145.50 a barrel if tankers carrying oil and gas from the Gulf are unable to resume deliveries to the global market via the strait of Hormuz. Some market observers have suggested that prices could rise to highs of $200 a barrel.
Consultancy Oxford Economics are predicting that UK CPI inflation will top 4% in the second half of this year – double the Bank of England’s target.
This forecast is based on the continued disruption in the Strait of Hormuz and significant damage to energy infrastructure across the Gulf.
Senior economist Edward Allenby explains:
“Under our updated assumptions, we now anticipate a much sharper rise in petrol prices, while higher wholesale gas prices cause a 19% increase in the Ofgem energy price cap in July.”
Oxford Economics have also cut their forecast for UK economic growth in 2026 and 2027, Allenby adds:
“Therefore, we now project GDP growth of 0.4% this year and 1% next year, compared to our February baseline of 0.9% in 2026 and 1.3% in 2027, respectively.”
Why UK 10-year bond yields are highest since 2008
The jump in UK government borrowing costs to their highest level since 2008 today shows there has been “a sharp repricing of inflation risk”, explains Lale Akoner, global market analyst at eToro:
The driver is the renewed energy shock, with oil prices surging and raising concerns about a second-round inflation wave. Markets have quickly shifted from expecting rate cuts to pricing a higher-for-longer path, with additional tightening now back on the table for the Bank of England.
“The move has been most aggressive at the front end, reflecting uncertainty around policy, but longer-dated yields are also rising as investors demand greater compensation for inflation and fiscal risk. The UK remains particularly exposed given its sensitivity to energy prices and already stretched public finances, which adds to upward pressure on borrowing costs.
“The Bank of England is in a difficult position. Growth remains weak and demand soft, limiting the scope for aggressive tightening, yet persistent inflation risks reduce flexibility. This tension is driving volatility across the curve.
“For investors, this is a classic rates shock environment. Higher yields driven by inflation, rather than stronger activity, tend to weigh on equities, pressure valuations, and challenge traditional diversification, particularly as correlations between bonds and risk assets become less reliable.”
Russian central bank cuts key rate by 50bps
Over in Moscow, Russia’s central bank has gone against the trend this week by cutting borrowing cost.
The Bank of Russia has lowered its key interest rate by 50 basis points to 15%, down from 15.5%.
Announcing the decision, the central bank says Russia’s economy is approaching a “balanced growth path”, adding:
In February, price growth predictably decelerated after a temporary acceleration in January. The Bank of Russia estimates that the underlying measures of current price growth remain in the range of 4–5% in annualised terms. However, uncertainty regarding the external environment has increased considerably.
Reuters reckons the sell-off in UK government debt today has been “exacerbated” by an Axios report on Friday that the Trump administration is considering plans to occupy or blockade Iran’s Kharg Island to pressure Iran to reopen the Strait of Hormuz.
City expects three UK rate rises this year, back to 4.5%
City traders are now pricing that the Bank of England will raise UK interest rates three times this year, to battle inflation.
The money markets are now pricing in 80 basis points of increases to Bank rate by December – that indicates that three quarter-point rate rises are fully priced in, taking rates back up to 4.5%, from 3.75% at present.
Yesterday the Bank of England left interest rates on hold, and warned that the “new shock” to the economy from the Middle East conflict would lead to higher than previously expected inflation in the short term.
Speaking after the meeting, BoE governor Andrew Bailey suggested that markets were getting ahead of themselves by forecasting rate rises.
He told broadcasters:
“I would caution against reaching any strong conclusions about us raising interest rates…. Today we’ve given a very clear message. The right place to be is on hold.”
UK borrowing costs hit highest since 2008 as inflation shock looms
A key measure of UK government borrowing costs has hit its highest level since 2008, as traders bet that the energy price shock will push up interest rates.
The yield, or interest rates, on 10-year UK gilts has risen to 4.927% this morning, a rise of 9 basis points (0.09 percentage points). That’s the highest level since July 2008, in the run-up to the financial crisis.
Yields rise when prices fall. This jump in borrowing costs is bad news for chancellor Rachel Reeves – it erodes the government’s headroom to keep within its fiscal rules.
The yield on shorter-dated, two-year, bonds has jumped by another 11 basis points to 4.522%. That’s the highest since January 2025.
These rising bond yields reflect expectations that UK inflation will rise to 3%, or higher, this summer as the jump in energy prices hits households and businesses.
Wetherspoon’s boss blames Reeves, Iran and temperance movement for profits slump
Rob Davies
JD Wetherspoon’s boss, Tim Martin, warned that beer prices are likely to rise, blaming an unlikely triumvirate of Rachel Reeves, Iran and the return of a Victorian-era-style temperance movement, as the pub chain recorded a slump in profits.
Sales in the first half of the year were up by 5% to nearly £1.1bn on a like-for-like basis, ahead of the wider sector.
But pre-tax profit fell by 32% to £22.4m, prompting a 12% fall in the pub chain’s shares in early trading.
Martin – who is known for his outspoken views on politics – pointed the finger at external factors as he warned that full year profits could undershoot expectations.
Top of his list are “pressure on consumer finances, combined with higher taxes, wages and energy costs”.
The chain expects an extra £70m in costs, mostly due to national insurance and national minimum wage increases.
“These cost increases will undoubtedly add to underlying inflation in the UK economy, although Wetherspoon, as always, will endeavour to keep price increases to a minimum,” he said.
Martin also warned that prices for consumers are likely to increase due to the Iran war.
“The lesson from the 1970s is that when energy prices go up everyone becomes poorer apart from oil producers.”
He also said pubs were at risk from lower rates of alcohol consumption, lashing out at a perceived “revival of the temperance movement, which appears to have surreptitiously infiltrated the mainstream media and the medical profession.”
The cascading effects of Middle Eastern instability on supply chains threaten more shocks to energy and food security in Britain, the Strategic Climate Risks Initiative are warning today.
Laurie Laybourn, executive director of the SCRI, says there is the risk of a shock to UK food security:
In recent years, extreme weather has caused three out of the five worst arable harvests on record in the UK. A wet spring and a potentially climate-charged summer mean that farmers do not need another shock. Yet it’s coming – as a result of rising fertiliser prices, with many fertilisers usually passing through the Strait of Hormuz. It’s a perfect storm for farmers: higher fertiliser and fuel costs and worsening climate extremes.
In response, more is needed to support farmers to reduce their reliance on volatile fertiliser supplies and farm more sustainably, as part of a wider food security strategy for a more volatile world.