Published by Global Banking & Finance Review®
Posted on March 3, 2026
3 min readLast updated: April 2, 2026
Add as preferred source on GoogleLondon’s FTSE 100 tumbled about 2.7% on March 3, 2026—its sharpest single-day drop in nearly a year—driven by surging energy prices, inflation fears and dwindling expectations for Bank of England rate cuts ahead of the UK’s spring budget update.
March 3 (Reuters) - Britain's main stock indexes logged their biggest daily drop in almost a year on Tuesday, as investors dialled down their expectations for interest rate cuts as a jump in energy prices rekindled worries about a resurgence in inflation.
Brent crude gained nearly 7%, while European gas prices soared 15% after the U.S.-Israeli war on Iran halted energy exports from the Middle East.
The selloff in British stocks was broad-based, with shares of banks, miners, housebuilders and travel companies coming under pressure.
The blue-chip FTSE 100 index dropped 2.8% and the midcap FTSE 250 index fell 3.1%, recording their steepest one-day falls in nearly a year.
British finance minister Rachel Reeves said she would steer the country's economy through the volatility unleashed by conflict in the Middle East, raising the prospect of closer ties with the European Union and promising stability for businesses.
Britain's independent budget forecasters cut their economic growth projection for this year to 1.1%, from a previous estimate of 1.4%, while revising up growth slightly for both of the next two years to 1.6%.
The statement was very much the low-key update the government had promised, said David Rees, head of global economics at Schroders.
"If higher energy prices squeeze real incomes and prevent the Bank from cutting rates, hopes would be dashed for a growth pick-up in the months ahead. That, in turn, could ultimately force the chancellor into action when fiscal watchers reconvene later this year – particularly if the recent increase in gilt yields continues," Rees added.
British government bond yields leapt for a second day as investors slashed their bets on Bank of England rate cuts amid mounting concerns that the Middle East conflict could add to inflationary pressures.
Traders were pricing in less than a one-in-three chance of a quarter-point BoE rate cut this month, a steep drop from the roughly 80% seen late last week.
Among stock movers, Smith & Nephew gained 3.6% after Barclays raised its price target on the medical products maker.
IAG dropped 5.4%, tracking a wider decline in carriers as fuel prices jumped and Middle East travel disruptions persisted for a fourth day.
(Reporting by Medha Singh and Sruthi Shankar in Bengaluru; Editing by Shilpi Majumdar and Alex Richardson)
London stocks dropped due to rising energy prices, renewed inflation worries, and lowered hopes for interest-rate cuts by the Bank of England.
By 1144 GMT, both the FTSE 100 and FTSE 250 indices fell 2.7%, with FTSE 100 seeing its steepest one-day fall in nearly a year.
Shares of HSBC declined 4.7%, Barclays fell 4.2%, and Lloyd's Banking Group lost 3.4%.
Traders now see less than a one-in-three chance of a quarter-point rate cut this month, a sharp drop from about 80% probability last week.
Surging energy prices and geopolitical tensions, such as the U.S.-Israeli war on Iran, are fuelling concerns about inflation.
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