London stocks rallied sharply on Wednesday, with the FTSE 100 climbing 1.8% as global equity markets responded to the Democrats securing control of both chambers of the US Congress, while oil prices plunged below $100 a barrel amid growing expectations of a possible reduction in hostilities with Iran.
The FTSE 100 closed at 10,829.21, up 1.79%, recovering strongly from Tuesday’s losses, while the FTSE 250 advanced 0.98% to 24,915.69 as investors returned to UK equities.
Brent crude fell more than 7% to approximately $96 a barrel, dropping below $100 for the first time since 7 October. US West Texas Intermediate crude also declined more than 6% to around $89 a barrel.
The sharp retreat followed the US midterm elections, which delivered major gains for the Democrats and increased political pressure on President Donald Trump’s administration over the ongoing conflict with Iran.
US Vice President JD Vance attributed the Republican Party’s election defeat to the Iran war, acknowledging growing public dissatisfaction with the conflict and its impact on energy prices.
In a social media statement, Vance said the war had been the principal reason for the party’s losses, reinforcing expectations that the administration could face pressure to pursue a diplomatic settlement.
Energy consultancy Rystad Energy suggested that Democratic control of Congress could make further military escalation politically more difficult, even though Trump retains significant executive authority over military operations.
Claudio Galimberti, Rystad’s chief economist, highlighted the ability of Congress to scrutinise military action, influence funding and increase pressure for a negotiated agreement over shipping through the Strait of Hormuz.
The prospect of restoring oil shipments through the strategic waterway has become an important factor in global energy markets, following months of disruption that pushed crude prices sharply higher.
The decline in oil prices could provide relief for transport businesses, manufacturers and consumers, while potentially easing inflationary pressures that have complicated central bank monetary policy.
Defence shares moved lower as investors reassessed the outlook for US military spending and the possibility of reduced hostilities. American defence contractor Lockheed Martin fell 6.6%, while Northrop Grumman declined 4.6% and General Dynamics dropped 2.5%.
The losses reflected concerns that a shift towards diplomatic negotiations could reduce expectations for additional military expenditure linked to the conflict. However, any changes to defence budgets or military commitments would depend on future decisions by the US administration and Congress.
UK economic data also supported investor sentiment, with private-sector activity expanding at its fastest pace since February. The S&P Global UK Composite Purchasing Managers’ Index rose to 52.9 in October from 52.0 in September, reflecting stronger activity across both manufacturing and services.
A reading above 50 indicates expansion, suggesting the British economy maintained momentum despite elevated borrowing costs and continued uncertainty over inflation.
S&P Global economist Tim Moore warned that stronger economic activity was accompanied by rising price pressures, reinforcing expectations that the Bank of England could increase interest rates. Investors are widely anticipating a 25-basis-point rate increase at Thursday’s monetary policy meeting, with further tightening potentially required if inflation remains persistent into 2027.
Among individual FTSE 100 companies, Marks & Spencer surged 6.66% after reporting stronger first-half revenue and attributable profit. The retailer benefited from continued strength in its Food business and improving clothing sales, although analysts highlighted ongoing challenges surrounding profitability within its fashion operations.
Weir Group was the FTSE 100’s weakest performer, plunging 9.51%, despite maintaining its expectations for full-year constant-currency revenue growth. The mining technology and engineering company reported higher third-quarter order intake compared with the previous year and said it remained focused on delivering its substantial aftermarket order backlog during the final quarter.
However, investors remained concerned about the composition of order growth and the pace of demand across parts of its business.
The FTSE 100’s strong finish reflected renewed investor confidence following the US election outcome and the sharp decline in energy prices, with the prospect of reduced geopolitical tensions supporting broader market sentiment.
Lower crude prices could ease pressure on inflation and household spending, although the outlook remains dependent on whether diplomatic efforts produce a lasting agreement.
Attention will now turn to Thursday’s Bank of England interest rate decision, developments in US-Iran negotiations and further corporate earnings, as investors assess whether London’s recovery can continue following one of its strongest sessions in recent weeks.
