UK Stocks Fall as U.S.-Iran Conflict Drives Oil Prices Higher

UK stocks fell on Tuesday, with the benchmark FTSE 100 index declining as escalating military conflict in the Middle East pushed crude oil prices higher and dampened investor appetite for risk assets.

Geopolitical Tensions Fuel Oil Surge

The sell-off in equities was triggered by a third consecutive night of U.S. strikes against Iran, with U.S. Central Command confirming it targeted missile and drone sites. According to reports, Iran retaliated with strikes on Bahrain and Jordan, while the UAE said Iranian missiles struck two oil tankers in the Strait of Hormuz.

The heightened conflict immediately impacted energy markets, a key concern for global inflation. Brent crude, the international benchmark, surged 2.94% to $85.75 a barrel, while West Texas Intermediate (WTI) crude climbed 2.83% to $80.36. Amid the uncertainty, investors sought traditional safe-haven assets, with gold futures rising 0.68% to $4,032.72 an ounce.

European Markets Retreat

The risk-off sentiment spread across European bourses, with major indices posting losses. As of early trading, market movements included:

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• FTSE 100 (UK): down 0.21%
• DAX (Germany): down 0.36%
• CAC 40 (France): down 0.62%

Higher energy prices can pose a dual threat to the economy, potentially stoking inflation while also increasing input costs for businesses, which can weigh on corporate earnings and economic growth forecasts.

Domestic Data Shows Slowing Retail Sector

Compounding the geopolitical concerns, new domestic data pointed to a slowdown in UK consumer spending. A report from the British Retail Consortium and KPMG showed that total retail sales growth slowed to 1.9% year-over-year in June, a significant drop from the 3.7% growth recorded in May.

The report highlighted a divergence in shopping habits, with in-store non-food sales falling by 1.1%. In contrast, online non-food sales continued to grow, rising by 5.1%, though this was a slower pace than the previous month.