UK markets jolted by Iran war as inflation fears mount

There are growing signs the Iran war is feeding directly into UK inflation worries, with financial markets reacting sharply to higher energy prices and the risk of a wider economic shock. Brent crude has moved above $100 a barrel, a level that has pushed investors to rethink the outlook for inflation and interest rates.  

In London, the FTSE 100 fell by around 1.7% to nearly 2% on Monday, while Germany’s DAX dropped by more than 2%, reflecting broader concern across European markets about oil, shipping disruption and growth. 

Bond markets have also moved sharply. UK gilt yields have risen as traders scale back expectations of rate cuts and increasingly price in the possibility that the Bank of England may have to keep rates higher for longer — or even raise them if the oil shock feeds through into prices. The Financial Times reported the two-year gilt yield jumping to 4.13%, with markets moving from expecting cuts to pricing a meaningful chance of a hike. 

That matters because higher gilt yields feed into the cost of borrowing across the economy — for the government, for businesses and often for mortgage borrowers too. Analysts are warning that if energy prices stay elevated, the UK could face a more difficult mix of higher inflation and weaker growth. 

A careful line for copy would be:

The Iran war is fuelling fresh inflation fears in the UK, with oil above $100 a barrel, the FTSE falling sharply and bond markets increasingly betting the Bank of England may have to keep interest rates higher for longer.

If you want, I can also turn this into a tighter live-blog paragraph in your usual house style.