UK stocks fall as Middle East conflict hits risk appetite

British equities ended lower in a broad-based selloff on Tuesday, with hostilities between Iran and Israel weighing on market sentiment and focus on a slate of rate decisions from central banks including the Bank of England this week.

The blue-chip FTSE 100 index closed 0.4% lower, with more than 70% of its components clocking losses – though the index was still just a whisker away from its all-time highs.

As the Israel-Iran conflict entered its fifth day, U.S. President Donald Trump indicated he may send senior American officials to meet with the Islamic Republic.

Trump also left early from the Group of Seven summit in Canada, where he signed a trade deal with British Prime Minister Keir Starmer.

Heavyweight banks bore the brunt of the selling pressure, with top lenders HSBC, Standard Chartered and Barclays each down more than 1%.

Travel and leisure stocks also saw heavy selling with airline operators Wizz Air and British Airways owner IAG down 7.5% and 4.4%, respectively.

Heavyweight energy gained 1.5% with oil prices ticking higher due to tensions in the Middle East. BP and Shell added more than 1% each as the top gainers on the blue-chip.

FTSE 100 pulls back from record as ME tensions escalate

Looking ahead, the spotlight this week will be on central bank meetings, with the Bank of England set to meet on Thursday and the U.S. Federal Reserve’s verdict on Wednesday. Both are expected to keep rates steady.

“The key takeaway from Thursday won’t be the rate decision, but rather what clues the tenor of the accompanying statement gives as to when rates might be cut again,” Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, said.

“The next meeting concludes on 7th August; assuming anticipated trends in inflation, wages and economic activity remain on track, a further 0.25% cut will be very much on the cards.”

British midcaps fell 0.2%. A stand-out was construction company Morgan Sindall which jumped 14.6% after saying it expects annual pre-tax profit to be significantly ahead of previous expectations.