By Tharuniyaa Lakshmi March 12 (Reuters) - Britain's main indexes extended losses on Thursday as a surge in oil prices heightened inflation worries amid the ongoing Middle East conflict and led
UK equities drop as oil surge intensifies inflation concerns
By Tharuniyaa Lakshmi
Market reaction to Middle East tensions and oil price surge
March 12 (Reuters) - UK stocks closed lower for a second straight day on Thursday after Iran stepped up attacks on oil and transport facilities across the Middle East, driving a surge in crude prices that stoked concerns about rising inflationary pressures.
Performance of major UK indices
The blue-chip FTSE 100 closed down 0.4%, while the mid-cap FTSE 250 fell 0.9%.
Oil price impact and energy sector gains
Oil prices climbed back to $100 after Iranian boats appeared to have attacked two fuel tankers in Iraqi waters and the country's supreme leader said the closure of the vital Strait of Hormuz should continue.
Energy stocks rally
The FTSE 350 energy index <.FTNMX601010> jumped 2.6% to a record high as crude prices gained almost 9%.
UK's vulnerability to energy shocks
Britain is seen as more exposed than many other Western countries to an energy price shock due to its stretched public finances and its heavy reliance on imported gas.
Inflation and interest rate outlook
"The longer the disruption goes on, the greater the impact on energy prices and in turn global inflation. This then has implications for interest rates too," said Danni Hewson, head of financial analysis at AJ Bell.
Bank of England policy expectations
Money markets have abandoned expectations of early Bank of England easing, with futures no longer pricing in a March cut, instead seeing a roughly 40% chance of a quarter-point rise in borrowing costs in December.
Broader economic and sector impacts
Housing market slowdown
A survey from RICS showed Britain's housing market has lost steam as demand faded from buyers concerned about the implications of the Middle East conflict and possible increases in mortgage rates on the back of energy price rises.
Banks and financial sector under pressure
Banks were among the worst-hit sectors in Europe as investors feared a hit to the economy from inflationary pressures. An index of UK banks dropped 4.8%.
Operational disruptions for major banks
HSBC this week closed its Qatar branches while Standard Chartered evacuated its Dubai office and told staff there to work from home, in a sign of how the conflict has rattled their day-to-day activities.
Individual stock movements
TP ICAP rose 10.7% to the top of the mid-cap index after the inter-dealer broker posted a 3.6% rise in annual pre-tax profit.
(Reporting by Tharuniyaa Lakshmi in Bengaluru; Editing by Shreya Biswas)
