London stocks ended a difficult week lower on Friday, with the FTSE 100 falling 0.3% as surging oil prices, renewed Middle East tensions and concerns over artificial intelligence investment weighed on investor sentiment.
The FTSE 100 declined 34.67 points to close at 10,690.36, while the FTSE 250 edged 0.1% higher to 24,237.39. The AIM All-Share fell 0.6% to 746.67.
For the week, the FTSE 100 lost 1.8%, the FTSE 250 declined 1.2%, and the AIM All-Share dropped 3.3%, ending a stronger period for UK equities.
European markets also weakened, with France’s CAC 40 falling 0.4% and Germany’s DAX declining 0.8%.
Brent crude surged to $116.34 a barrel from $111.18 on Thursday, reaching its highest level since early May amid concerns about further disruption to Middle Eastern oil supplies.
The increase followed reports that the United States and Israel could be preparing renewed military action against Iran after the upcoming US midterm elections.
The continuing conflict has raised concerns over energy infrastructure and shipping routes, with investors increasingly considering the possibility that oil prices could remain elevated for longer.
Higher energy prices are adding to global inflation pressures, potentially increasing transport, manufacturing and household costs while complicating interest rate decisions by major central banks.
Barclays analyst Emmanuel Cau warned that uncertainty over the reliability of Middle Eastern oil supplies could keep crude prices elevated, maintaining pressure on inflation and financial conditions.
Meanwhile, artificial intelligence investment concerns continued to unsettle global technology markets, with investors questioning whether the substantial capital required for new data centres and computing infrastructure will generate sufficient returns.
Bank of America strategists highlighted growing reluctance among investors to finance the AI infrastructure expansion, citing rising funding costs, increasing competition and potential pressure on future profit margins.
Wall Street was mixed around London’s close, with the Dow Jones Industrial Average falling 0.8% and the S&P 500 slipping 0.1%, while the Nasdaq Composite recovered slightly to trade 0.2% higher.
The modest Nasdaq rebound followed Thursday’s 2.6% plunge, one of the index’s sharpest declines in recent months.
Back in the UK, economic figures presented a mixed picture ahead of next week’s Budget.
The S&P Global flash composite purchasing managers’ index rose to 53.1 in October from 52.0 in September, marking an eight-month high and indicating stronger private sector activity.
The improvement was supported by the fastest increase in new business for more than two years, suggesting some resilience across the UK economy.
However, retail sales volumes fell 0.4% in September, compared with economists’ expectations of a smaller 0.1% decline, highlighting pressure on consumer spending.
Consumer confidence also deteriorated sharply, with GfK’s confidence index falling 11 points to minus 24 in October, reversing three consecutive months of improvement.
The steepest declines were recorded in expectations for the wider economy and willingness to make major purchases, both of which fell 14 points.
Energy companies were among the FTSE 100’s strongest performers, benefiting from the sharp rise in oil prices.
BP surged 4.4%, Ithaca Energy gained 3.9% and Shell advanced 3.7%, with investors looking ahead to third-quarter results from BP and Shell next week.
Medical technology group Smith & Nephew rose 1.7% following reports that it had held advanced merger discussions with Johnson & Johnson’s DePuy Synthes orthopaedics business.
According to the Financial Times, the proposed combination ultimately failed over disagreements about leadership of the merged business.
However, Rolls-Royce led the FTSE 100 fallers, dropping 7.6%, as elevated jet fuel prices, geopolitical uncertainty and disappointing market reaction to results from French aerospace group Safran weighed on the sector.
Safran shares fell 10%, while fellow UK aerospace company Melrose Industries declined 4.7%.
Technology-related selling also affected Computacenter, which fell 5%, while luxury fashion group Burberry declined 4.3% following weak results from Gucci owner Kering, whose shares plunged 17%.
On the FTSE 250, Wag Payment Solutions dropped 4.2% after private equity investor TA Associates sold its remaining 13% stake in the business.
In currency markets, sterling strengthened to $1.3376 against the dollar and €1.1946 against the euro, while US Treasury yields edged lower.
The benchmark 10-year Treasury yield slipped to 5.00%, compared with 5.02% on Thursday.
Gold fell below $4,000 an ounce to $3,996.30, extending its recent decline as investors reassessed precious metal exposure amid broader market volatility.
The FTSE 100’s 1.8% weekly fall reflects growing uncertainty over energy prices, inflation and the sustainability of the AI investment boom, although strength among major oil producers provided some support.
Investors now face a significant week for corporate earnings and monetary policy, with third-quarter updates expected from AstraZeneca, GSK, BP, Shell, HSBC, Lloyds Banking Group and Unilever.
Interest rate decisions are also scheduled in the United States, eurozone, Japan and Canada, while the UK’s forthcoming Budget on 28 October will provide further direction on taxation, spending and the economic outlook.
Attention will now turn to whether central banks signal further interest rate increases and whether major corporate earnings can restore confidence, as global markets continue to balance economic resilience against rising geopolitical and financial risks.
