The FTSE 100 ended a bruising week on the back foot with oil heading above 90 US dollars a barrel sending UK bond yields soaring as inflation fears mount.
A soft US jobs report added to the downbeat mood as European and US markets also fell sharply.
The FTSE 100 index ended down 129.19 points, 1.2%, at 10,284.75.
The FTSE 250 closed down 199.25 points, 0.9%, at 22,500.95 and the AIM All-Share dropped 3.66 points, 0.5%, at 784.70.
For the week, the FTSE 100 was down 5.7%, the FTSE 250 fell 5.3% and the AIM All-Share dipped 4.2%.
Brent oil traded sharply higher at 90.85 dollars a barrel on Friday afternoon, up from 84.41 dollars at same time on Thursday.
The latest gains came after Kuwait joined Qatar and said that it was halting energy production, as the crisis in the Middle East deepened.
Kathleen Brooks, research director at XTB, noted US President Donald Trump also brushed off hopes that mediation was taking place to end this war in the Middle East, dashing hopes that the conflict will be averted quickly.
Attacks on oilfields were reported in southern Iraq and in the northern autonomous Kurdistan region, which forced a US-run oil field to shut production.
Earlier this week, Mr Trump pledged to protect ships through the Strait of Hormuz, but shipping companies have exercised caution in the region.
US Energy Secretary Chris Wright said on Friday the US Navy was preparing to escort ships through the Strait of Hormuz “as soon as it’s reasonable to do it”.
Iranian state television on Friday reported a fresh drone strike on a ship in the strategic Strait of Hormuz, resulting in a fire, on the seventh day of the war with the US and Israel.
Bank of America said history suggests only marked and persistent spikes in the price of crude trigger persistent inflationary cycles.
“If the status quo persists, with oil prices around 15 dollars higher than the pre-war level, we would fade (oil induced) inflation concerns. But an escalation driving oil prices persistently above 100 dollars would become more concerning,” the bank said.
Adding to market woes, total non-farm payroll employment in the US fell by 92,000 in February, data published by the US Bureau of Labour Statistics showed, sharply underperforming against FXStreet-cited expectations of a 59,000 rise.
January’s increase was revised down to 126,000 from 130,000, while December’s total was revised down by 65,000, from an increase of 48,000 to a fall of 17,000.
The US unemployment rate increased to 4.4% in February from 4.3% in January, where it had been expected to remain.
Analysts at Wells Fargo said the data will challenge what was a growing view among Fed officials that the labour market is stabilising, while the Iran conflict further compounds the outlook.
“Ultimately, the Federal Reserve cannot do much to combat higher inflation from a supply-side oil price shock. Yet, the inflationary impact of the conflict in Iran makes it harder to be a dove at the moment.
“On balance, we expect the FOMC to remain in wait-and-see mode, and our forecast for 50 bps of rate cuts this year remains unchanged,” Wells Fargo said.
ING said January jobs numbers probably overstated the strength in hiring, while bad weather and strike actions probably mean that the February numbers overstate the weakness.
“Nonetheless, hiring remains subdued, and higher energy costs will squeeze spending power, leaving the door open for Fed rates cuts. But that will be a late second half of the year story,” it added.
Rising energy prices put bonds under pressure amid expectations of delays to interest rate cuts due to expected higher inflation.
The yield on the US 10-year Treasury stretched to 4.16% on Friday from 4.15% on Thursday. The yield on the US 30-year Treasury widened to 4.78% from 4.76%.
Moves were more marked in the UK. The yield on UK 10-year gilts leapt to 4.61% on Friday from 4.48% on Thursday, having traded at about 4.23% a week ago.
“Amid the current energy shock, the UK has twin vulnerabilities given a high dependency on natural gas but also a rapidly weakening labour market,” Allan Monks, analyst at JPMorgan said.
He said a March Bank of England rate cut is “off the table” and April “requires a clear calming of geopolitical tensions”.
“For now we delay the next cut to April, but the risks are already shifting towards a lengthier pause and larger growth impact,” he added.
But Barclays still expects a 25 basis points cut, although it accepts the decision is on a “knife-edge”.
“If geopolitical uncertainty does not subside, or data come in hotter than we expect, then the balance could easily tip to a hold,” Barclays added.
In European equities on Friday, the CAC 40 in Paris closed down 0.9%, as did the DAX 40 in Frankfurt.
On Wall Street, markets also faltered. The Dow Jones Industrial Average was down 1.1%, the S&P 500 index was 1.0% lower while the Nasdaq Composite dropped 0.8%.
The pound was higher at 1.3387 US dollars on Friday afternoon, up from 1.3309 dollars at the equities close on Thursday.
The euro stood higher at 1.1597 dollars, from 1.1574 dollars. Against the Japanese yen, the dollar was trading a touch lower at 157.62 yen, compared to 157.67 yen.
Gold climbed to 5,142.35 dollars an ounce on Friday from 5,075.16 dollars on Thursday.
Stocks making waves on Friday included IMI, up 2.3%.
The Birmingham-based designer of engineering products in fluid and motion control applications announced a new £500 million share buyback as it reported what it called another year of “high-quality” revenue and profit growth.
Pretax profit rose 27% to £419 million in 2025 from £330 million the year prior, while revenue increased 4.1%, or 5% organically, to £2.30 billion from £2.21 billion.
Fading rate cut hopes put rate-sensitive housebuilders on the back foot, with Barratt Redrow down 2.6% and Berkeley down 3.0%, while DIY retailer Kingfisher fell 5.2%.
On the FTSE 250, cruise operator Carnival shed a further 6.4% as travel operators continued to come under pressure.
The biggest risers on the FTSE 100 were: Rightmove, up 24.4p at 466.0p; Autotrader, up 22.1p at 494.8p; BAE Systems, up 64.0p at 2,214.0p; 3i Group, up 85.0p at 3,014.0p; and IMI, up 62.0p at 2,814.0p.
The biggest fallers on the FTSE 100 were: Kingfisher, down 17.7p at 325.7p; Anglo American, down 148.0p at 3,231.0p; Airtel Africa, down 14.8p at 342.2p; Pershing Square Holdings, down 166.0p at 3,966.0p; and Marks & Spencer, down 14.1p at 364.0p.
Monday’s global economic calendar has an inflation reading in China overnight, plus US consumer inflation expectations report.
Monday’s UK corporate calendar has full year results from London-based provider of shipping services, Clarkson.
Contributed by Alliance News
