London Quick Take - Thursday - FTSE Slides Amid Middle East Escalation and Inflation Concerns

UK

FTSE 100

Stock markets faltered in Asia overnight as reports of further U.S. strikes on Iran, alongside missile activity impacting Gulf infrastructure, dampened optimism around a potential peace deal and prompted a risk-off tone across global markets.

The FTSE is trading –1.1% lower at the time of writing, while the Euro STOXX 50 is down -0.5%, as gains in chipmakers like ASML help cushion broader declines driven by the U.S. military strikes in Iran. Unfortunately, the FTSE lacks similar exposure to large semiconductor names and is instead weighed down by heavyweight constituents including HSBC -2.0% and AstraZeneca -2.3%.

Equities in Focus

UK takeover activity has accelerated recently, driven largely by overseas buyers targeting undervalued British companies which trade at a discount to US and European peers, making them attractive and helping push dealmaking to near-record levels in 2026. Yesterday, PPHE (Park Plaza owner) received a bid from Israel’s Fattal Group at a 47% premium to the closing share price of PPHE of 15 GBP on 13 November 2025, the price has increased +22.95% today to 19.84 GBP still below the value of the offer.

Recent bids also highlight this trend: Ingredion has made a £2.7bn approach for Tate & Lyle on the 14th of May, while private equity firm Apollo has proposed a £1.5bn takeover of Bodycote at a premium on the 22nd of May.

Consumer & Economic Data

The Food and Drink Federation’s industry wide survey released today found that over 80% of firms plan to raise prices to pass on higher costs stemming from the Iran war, including increased energy, transport, packaging, fertiliser and ingredient costs. This matters because it points to sustained upward pressure on food inflation, one of the most visible components of household spending, and reinforces concerns that inflation could remain elevated rather than fall quickly.

Gilts

UK gilts have seen a pullback today, with the 10‑year yield up nearly 2bps, ending a five‑day rally driven by easing expectations of tighter BoE policy. Earlier gains were supported by weaker labour data, but yields are now edging higher again as rising oil prices and continued Middle East tensions revive inflation concerns. Markets are currently pricing around 42bps of tightening by year‑end (roughly one to two hikes), with the first rate increase almost fully priced in for the Bank of England’s September meeting.

Sterling

Sterling is weakening as investors move into the US dollar amid Middle East uncertainty, pushing the pound to a 10‑day low. Rising oil prices are also supporting the dollar because commodities tend to be priced in dollars, so higher prices increase demand for the currency.

At the same time, UK political uncertainty and expectations that the ECB may raise rates faster than the BoE are adding further pressure on the pound.

US

Equities in Focus

Consumer & Economic Data

Commodities

Oil

Oil prices jumped more than 2% due to tensions in the Middle East. The news of the strikes reversed the previous session’s sharp sell-off, when prices had dropped over 5% on hopes of a US‑Iran deal.

Gold

Gold prices dropped to a two‑month low at 4,417 USD as ongoing tensions in the US‑Iran conflict boosted inflation concerns, increasing expectations of higher interest rates. Investors are awaiting key inflation data for signals on the Federal Reserve’s policy direction under new chair Kevin Warsh