UK stock indexes experienced a decline on Monday, influenced by a global selloff, as rising tensions in the Middle East led to an increase in oil prices, prompting investors to seek refuge in safe-haven assets. Oil prices surged almost 8% after retaliatory Iranian attacks disrupted shipping in the crucial Strait of Hormuz following the weekend’s bombing by Israel and the United States that killed Iranian Supreme Leader Ayatollah Ali Khamenei. While British oil majors such as Shell rose 2% and defence companies like BAE Systems climbed 4.9%, other equity sectors, particularly banks and travel companies, faced significant selling pressure as investors prepared for potential travel and economic disruptions.

The blue-chip FTSE 100 fell 1% by 1131, having touched a record high in the prior session, while the domestically oriented FTSE 250 index tumbled 1.3%.”If the issues persist, then the market will start to worry about new inflationary pressures and that could lower expectations for near-term interest rate cuts,” stated Dan Coatsworth. Heavyweight banks, including HSBC, Barclays, and Lloyds Banking Group, fell between 2.7% and 4.7%, as surging oil prices fueled concerns about a resurgence of inflation.

Yields on British government bonds increased as investors adjusted their forecasts regarding potential interest rate reductions by the Bank of England. Market participants were assessing a 74% probability that the Bank of England will implement a rate cut later this month, a decrease from approximately 78% observed the previous week. British Airways operator IAG opened a new tab fell 5.8% after the airline said on Saturday it had cancelled flights to Tel Aviv and Bahrain until March 3.

The broader FTSE 350 travel & leisure index fell 4.6%, with hotels and cruise operators among the major decliners. Senior, which supplies components to aircraft manufacturers, including Boeing and Airbus, fell 3.7% despite reporting upbeat results.