Key facts
- UK borrowing costs surged and oil prices rose after Donald Trump suggested the Iran ceasefire deal was over.
- The US launched strikes on Iran, which retaliated by targeting US military sites.
- The yield on ten-year gilts increased to 4.96%, and Brent crude reached $78 per barrel.
- European gas prices hit a month-high of €49 per MWh.
- The FTSE 100 index fell 1.5% amid renewed inflationary fears.
UK borrowing costs surged and oil prices rose sharply on Wednesday after US President Donald Trump suggested his fragile ceasefire deal with Iran was over. The yield on ten-year gilts, a key measure of government borrowing costs, climbed 11 basis points to 4.96%. Brent crude oil, the international benchmark, rocketed to a two-week high of $78 per barrel, up from $72 earlier in the week, renewing inflationary fears. European gas prices also rose five percent to a month-high of €49 per MWh.
Trump's remarks, made during a Nato summit in Turkey, included calling Iran's leadership 'cuckoo' and stating he did not 'want to deal' with Iran anymore. Nato head Mark Rutte defended the US strikes as 'absolutely necessary'. Iran responded by targeting 85 US military sites in Bahrain and Kuwait. The US and Iran had previously agreed to a 60-day ceasefire memorandum of understanding on June 17, but challenges remained regarding Iran's nuclear capabilities and control over the Strait of Hormuz.
The renewed geopolitical tensions led investors to reduce their exposure to equities, with the FTSE 100 index tumbling 1.5% to 10,501. However, Susannah Streeter, chief investment strategist at Wealth Club, noted that increased production from OPEC+ helped to temper concerns about a fresh energy crunch. Despite this, she described the situation as a 'major setback' as global nations had been anticipating a longer-term resolution. Oil majors Shell and BP were among the top performers on the FTSE 100, with shares rising two percent and 3.5% respectively.