London stocks fall as BoE keeps rates on hold; Middle East tensions persist

• London stocks dropped to an over two-week low on Thursday as the Bank of England left borrowing costs unchanged, while the raging conflict in the Middle East kept risk-taking in check. The benchmark FTSE 100 (FTSE) closed down 0.6%, with a stronger pound adding additional pressure on the index.
• Israel and Iran's aerial attacks continued as U.S. President Donald Trump kept the world guessing about whether the U.S. would join Israel in air strikes on Tehran. Markets were hopeful of talks between the U.S. and Iran, and between the European Union and Iran on Friday, leading to a potential de-escalation in tensions.
• The conflict has impacted oil prices, which were higher on the day, boosting the energy sector by 1.3%. The Bank of England held interest rates at 4.25% as expected on Thursday but said it was focused on risks from a weaker labour market and higher energy prices as conflict in the Middle East escalates.
• "The big thing for UK equities ... is to see whether earnings can start picking up or not. It's something we haven't seen a lot lately, and that is what really is missing," said Lilian Chovin, head of asset allocation at the British private bank Coutts. "The slight weakness in the labour market is something you're starting to see. It's an emerging trend of loosening employment markets across the world, which should pave the way for rate cuts, maybe in the back end of this year," Chovin added.
• This follows a meeting of the U.S. Federal Reserve, where Chair Jerome Powell said he expected "meaningful" inflation ahead, due to Trump's planned tariffs, but policymakers still kept two rate cuts in 2025 on the table, offering little clarity on the overall stance.

(Source: Reuters)