London’s main stock indexes closed higher on Wednesday following signals from U.S. President Donald Trump suggesting a potential end to the conflict in Iran. The shift in sentiment prompted investors to scale back expectations for further interest rate hikes by the Bank of England. The blue-chip FTSE 100 closed up 1.8%, while the midcap FTSE 250 climbed 2.2%. Both indexes experienced their most significant monthly drop since 2020 on Tuesday, driven by concerns that rising oil prices, spurred by the war, would fuel inflation.
President Trump indicated that the United States could soon conclude its involvement in the Iranian conflict, potentially returning for targeted strikes if necessary. These comments led to adjustments in interest rate futures, with markets now fully pricing in a single 25 basis-point increase in the BoE’s bank rate by the end of 2026. Bank of England Governor Andrew Bailey cautioned that markets were prematurely pricing in interest rate hikes, which the central bank aimed to avoid amidst the economic challenges posed by the Iran war.
Most FTSE 350 sub-sectors traded positively, except for the energy sector, which declined 4.2% from record highs as oil prices dipped amid Middle East volatility. Aerospace and defence stocks saw significant gains, rising 5.7% and providing the biggest boost to the benchmark index. Major banks also experienced gains, with NatWest Group, TBC Bank Group, and Lloyds Banking Group all increasing between 5.4% and 5.8%.
However, Berkeley Group, a home builder, experienced a 9.6% decline after forecasting slower profit growth through 2030. The company announced it would halt land purchases, citing the war and the potential for higher interest rates as factors dampening hopes for a housing market recovery.
