1st Sep 2026 17:05
(Alliance News) - Stock prices in London closed lower on Tuesday as government bond yields soared on the back of rising oil prices, reigniting worries over inflation.
The FTSE 100 index closed down 34.98 points, 0.3%, at 10,789.28. It had earlier traded as low as 10,689.55.
The FTSE 250 ended down 417.50 points, 1.7%, at 24,521.29, and the AIM all-share closed down 15.12 points, 1.9%, at 796.06.
The Cboe UK 100 closed down 0.2% at 1,072.89, the Cboe UK 250 down 1.6% at 21,333.62, and the Cboe small companies down 0.5% at 18,974.83.
"It's an unsettling start to September, with the mood tested by renewed conflict between the US and Iran, keeping worries bubbling about high energy costs, inflation and debt, and the knock-on effect on growth," commented Susannah Streeter, chief investment strategist at Wealth Club.
In European equities on Tuesday, the CAC 40 in Paris closed down 0.4%, while the DAX 40 in Frankfurt ended 1.1% lower.
In New York, equity markets were also lower. The Dow Jones Industrial Average was down 0.4%, the S&P 500 was 0.5% lower, and the Nasdaq Composite fell 0.7%.
The risk-off mood came amid a fresh upward move in the oil price putting pressure on global bond yields.
The price of Brent crude firmed as a Greek security firm reported that "unknown projectiles" struck two oil tankers in the Strait of Hormuz overnight, in a fresh flare-up in the US-Iran war.
Attacks on commercial ships in the key shipping route, which was free to transit before the war, previously led to the collapse of an April ceasefire between the US and Iran.
Tehran has imposed an effective blockade of the strait since the US and Israel launched their war in late February.
It says it wants to charge fees for passage and has attacked ships it accuses of attempting to circumvent its preferred route through the waterway.
In response, the US has imposed a rival blockade of Iranian ports.
Brent crude for November delivery was quoted at USD92.48 a barrel at the time of the London equities close on Tuesday, up from USD88.06 at the time of the London equity close on Friday.
"This renewal of hostilities threatens the destruction of energy infrastructure across the region. Add this to the Ukrainian attacks on Russian energy assets, and there's a strong tailwind for oil prices," commented David Morrison, senior market analyst, at Trade Nation.
The higher oil price fuelled fears of rising inflation, putting pressure on global bond yields.
The yield on the US 10-year Treasury was quoted at 4.77%, widening from 4.68% on Friday. The yield on the US 30-year Treasury was quoted at 5.25%, up from 5.18%.
In the UK, the yield on 10-year gilts stretched to 5.22% from 5.15% on Friday, while the 30-year hit 5.85%, up from 5.79% on Friday.
The 10-year gilt had earlier traded as high as 5.25%, a 18-year high, and the 30-year at 5.89%, a level last seen in 1998.
Kathleen Brooks, research director at XTB, said the rise in bond yields poses a "major challenge" for the chancellor ahead of next month's budget.
"Every basis point increase in the cost of borrowing in the UK adds to debt servicing costs, which needs to be paid by the public purse. Since the spring, the UK's interest-only bill has risen by up to GBP6 billion by the end of this parliament. This is a large hole for the chancellor to fill next month."
The pound was quoted at USD1.3527 at the time of the London equities close on Tuesday, down from USD1.3560 on Friday. Against the euro, sterling fell to EUR1.1669 from EUR1.1686.
The euro eased to USD1.1593 from USD1.1603. Against the yen, the dollar rose to JPY160.07 from JPY160.00.
In Europe, figures from Eurostat showed the pace of annual consumer price inflation accelerated to 3.3% in August from 2.9% in July.
This was the highest annual inflation rate for the eurozone since September 2023, when it stood at 4.3%.
The data comes ahead of next week's European Central Bank meeting at which the Frankfurt-based lender is expected to raise interest rates by 25 basis points.
Back in London, the stronger oil price boosted BP, up 5.2% and Shell, up 2.6%, but a slump in gold and other metal prices hurt Endeavour Mining, down 5.4%, Antofagasta, down 5.2% and Fresnillo, down 4.9%.
Gold was quoted at USD4,364.48 an ounce, down from USD4,540.70 on Friday.
Reckitt Benckiser climbed 4.4% after it said there are currently no outstanding jury verdicts in the overall necrotising enterocolitis litigation against its baby formula division, Mead Johnson, following a favourable verdict in a case in Illinois.
The Slough, England-based consumer goods firm commented after a jury in the US District Court for the Northern District of Illinois voted unanimously in the company's favour in the Inman case.
This was a 'bellwether' trial among a group of cases alleging that formula for premature babies is linked to a dangerous bowel disease, NEC, a serious gastrointestinal condition that primarily affects premature infants.
AJ Bell Investment Director Russ Mould said the ruling "removes a significant area of doubt surrounding the business which could help clear the way to a sale [of Mead Johnson] which Reckitt has been pursuing for some time".
Reckitt bought Mead Johnson, a manufacturer of baby milk formula, in 2017 for USD17.9 billion, including debt. The unit has been hit by impairments and US lawsuits in recent years.
In April, La Lettre reported that France's Danone was considering buying the business.
On the FTSE 250, Bodycote rose 4.6% after it accepted a GBP1.65 billion offer from Veritas Capital Fund Management, while a potential rival suitor said it is "considering its position".
The Macclesfield, England-based provider of heat treatment and specialist metallurgical technology services said the proposal from New York-based private equity firm Veritas values each share at 940 pence.
In August, Bodycote disclosed it had received two bid proposals, one from Veritas worth 914p per share, and one from CVC Advisers, worth up to 915p per share.
Responding to the bid from Veritas, CVC said it is "considering its position" and urged Bodycote shareholders to "take no action" in the meantime.
RBC Capital Markets analyst Mark Field said the price "does not appear particularly generous on a take-out basis," being "merely in line" with its 10-year average enterprise value to earnings before interest, tax and amortisation multiple.
Elsewhere, Capricorn Energy jumped 9.6% as it recommended a higher cash takeover offer from Norway's DNO ASA, which trumped a proposal from Genel Energy.
The Edinburgh-based oil and gas company said DNO will pay USD4.224 per share in cash, plus a special dividend of USD0.99, for total consideration of USD5.214 per share, a 10% premium to Genel's offer.
In response, Genel said it was "considering its position" and would make a further announcement "when appropriate". It closed down 7.1%.
The biggest risers on the FTSE 100 were BP, up 26.80p at 541.30p, Reckitt Benckiser, up 228.00p at 5,360.00p, Rentokil Initial, up 11.20p at 356.90p, Tesco, up 14.20p at 471.50p and Airtel Africa, up 9.40p at 342.20p.
The biggest fallers on the FTSE 100 were Endeavour Mining, down 258.00p at 4,484.00p, Antofagasta, down 211.00p at 3,828.00p, Weir, down 140.00p at 2,706.00p, Fresnillo, down 154.00p at 3,016.00p, and Rolls Royce, down 71.00p at 1,459.20p.
Wednesday's global economic calendar has an interest rate decision in Canada, plus ADP payrolls data, factory orders figures and the Federal Reserve's Beige Book in the US.
Wednesday's UK corporate calendar has half-year results from Irish house-builder and developer Cairn Homes and electronic connector manufacturer TT Electronics.
By Jeremy Cutler, Alliance News reporter
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