UK Stock Markets Drop as Iran Conflict and Oil Surge Drive Global Selloff

Market Reactions to Middle East Tensions and Oil Price Surge

Global Selloff Triggered by Escalating Conflict

March 2 (Reuters) - UK stock indexes fell on Monday, swept up in a global selloff, as an escalating military conflict in the Middle East sparked a jump in oil prices and pushed investors towards safe-haven assets. 

Oil Prices Surge After Iranian Attacks

Oil prices surged almost 8% after retaliatory Iranian attacks disrupted shipping in the crucial Strait of Hormuz following the weekend's bombing by Israel and the United States that killed Iranian Supreme Leader Ayatollah Ali Khamenei. [O/R]

Sector Performance Amid Market Volatility

While British oil majors such as Shell rose 2% and defence companies like BAE Systems climbed 4.9%, other equity sectors, particularly banks and travel companies, came under heavy selling pressure as investors braced for travel and economic disruptions.

FTSE Indexes and Key Stock Movements

The blue-chip FTSE 100 fell 1% by 1131 GMT, having touched a record high in the prior session, while the domestically oriented FTSE 250 index tumbled 1.3%.

Investor Concerns Over Inflation and Interest Rates

"If the issues persist, then the market will start to worry about new inflationary pressures and that could lower expectations for near-term interest rate cuts," said Dan Coatsworth, head of markets at AJ Bell.

Banks and Bond Yields React to Oil Spike

Heavyweight banks, including HSBC, Barclays and Lloyds Banking Group fell between 2.7% and 4.7%, as surging oil prices fuelled concerns about a resurgence of inflation. 

British government bond yields rose as investors trimmed their expectations for Bank of England interest rate cuts. Traders were pricing in a 74% chance that the BoE will cut rates later this month, down from about 78% last week.

Travel and Leisure Sector Hit Hard

British Airways operator IAG fell 5.8% after the airline said on Saturday it had cancelled flights to Tel Aviv and Bahrain until March 3. The broader FTSE 350 travel & leisure index fell 4.6%, with hotels and cruise operators among the major decliners.

Impact on Aerospace Suppliers

 Senior, which supplies components to aircraft manufacturers, including Boeing and Airbus, fell 3.7% despite reporting upbeat results. 

(Reporting by Sruthi Shankar in Bengaluru; Editing by Harikrishnan Nair)