The FTSE 100 fell 1.5% on Thursday as growing optimism over a potential Middle East peace agreement triggered sharp declines in energy and defence shares.
London underperformed other major European and US markets as investors reacted to reports suggesting the US and Iran are moving closer to a diplomatic deal that could ease tensions and reopen the Strait of Hormuz.
Defence stocks were among the biggest casualties, with BAE Systems dropping 5% and Babcock International falling 2.2%.
Oil majors also came under pressure after Brent crude slipped below $100 per barrel on expectations that energy exports through the Gulf could normalise. BP fell 2.6%, while Shell lost 2.9%.
Markets also pared back expectations for UK interest rate increases, with traders reducing forecasts for Bank of England tightening this year from three hikes to two. Banking shares weakened in response, with HSBC down 1.6% and Barclays falling 1.7%.
The session’s steepest decline came from RELX, which dropped 6.2% after a downgrade from Morgan Stanley raised concerns over rising competition from AI-focused legal technology startups.
Meanwhile, Centrica slid more than 5% after warning that earnings at its British Gas retail business would likely come in at the lower end of guidance due to rising bad debts.
One area of strength was precious metals. Gold climbed above $4,700 an ounce to a two-week high, lifting mining shares including Fresnillo and Endeavour Mining, which rose 5.8% and 5.1% respectively.
