London’s FTSE 100 experienced a decline for the second consecutive session on Tuesday, as investors tempered their expectations for interest-rate reductions following a rise in energy prices that reignited concerns about inflation in anticipation of new UK economic and borrowing projections. Shares of economically sensitive banks experienced a decline, with HSBC down 4.7%, Barclays off 4.2%, and Lloyd’s Banking Group losing 3.4%. By 1144, the blue-chip FTSE 100 index dropped 2.7%, marking its steepest one-day fall in nearly a year. The midcap FTSE 250 index is down 2.7%, having slid to its lowest level in six weeks.

The Office for Budget Responsibility is anticipated to revise down its economic growth forecast for the year, while British finance minister Rachel Reeves is expected to adhere closely to her commitments regarding public finances in her budget update speech later today. “Set against a backdrop of rapidly rising energy prices, there will undoubtedly be plenty of scrutiny over how higher oil and gas prices could spark a fresh bout of inflation,” remarked Joshua Mahony. British government bond yields surged for a second consecutive day on Tuesday as investors reduced their expectations for Bank of England rate cuts, driven by escalating concerns that the U.S.-Israeli conflict involving Iran may exacerbate inflationary pressures.

Market participants are currently assigning a probability of less than one-in-three for a quarter-point rate cut by the Bank of England this month, marking a significant decline from the approximately 80% observed late last week.
Among stock movers, Smith & Nephew gained 3.9% after Barclays raised its price target on the medical products maker. IAG opens new tab dropped 6.5%, tracking a wider decline in carriers as fuel prices jumped and Middle East travel disruptions persisted for a fourth day.