British stocks closed lower on Friday, marking their second consecutive week of losses, as escalating tensions in the Middle East intensified concerns about inflation and complicated the Bank of England’s monetary policy outlook. The blue-chip FTSE 100 index fell by 0.4%, while the mid-cap FTSE 250 index also declined by 0.4%. Although both indexes recorded losses for the week, the declines were less pronounced compared to the previous week.
Market sentiment was subdued as the U.S.-Israeli conflict with Iran approached its third week, with Washington adopting a firmer stance and Tehran vowing to maintain the closure of the Strait of Hormuz. Adding to the negative sentiment, recent data revealed that Britain’s economy experienced unexpected stagnation in January following weak growth in prior months, indicating a loss of momentum even before the conflict intensified.
Analysts suggest that a prolonged closure of the Strait of Hormuz and persistently high energy prices pose a significant risk. Jonathan Stubbs, an analyst at Berenberg, noted that the Bank of England would likely postpone interest rate cuts for the remainder of the year to avoid a depreciation in the pound, which could exacerbate inflation. Money markets have already priced out expectations of a rate cut from the Bank of England in March, according to LSEG data. Several major banks, including BofA, Goldman Sachs, Standard Chartered, and Morgan Stanley, have revised their forecasts to anticipate a delay in easing by the BoE, now projecting the first cut in the second quarter.
Among individual stocks, HSBC and Standard Chartered experienced declines of 1.2% and 3.2%, respectively. These banks have significant investments in the Gulf region and have faced operational disruptions due to the conflict. Conversely, the UK energy index rose by 1.1%, with oil majors BP and Shell increasing by 0.9% and 1.1%, respectively, as Brent crude prices traded above $100 a barrel.
