The FTSE 100 ended lower on Thursday as investors weighed renewed military clashes between the US and Iran against reports suggesting diplomats are still attempting to salvage a broader agreement.
London’s benchmark index closed down 0.6% at 10,425.96 while the FTSE 250 slipped 0.3% to 23,324.92, with sentiment shifting repeatedly throughout the session as headlines from the Middle East continued to dominate trading.
Markets initially struggled after the US and Iran exchanged strikes in their most serious confrontation since an April ceasefire began, raising fears that the fragile truce could collapse completely.
Kuwait confirmed it had responded to incoming fire during the latest escalation, while violence also intensified along Lebanon’s southern border after Israel declared large areas combat zones.
The renewed hostilities forced investors to reassess expectations that a near-term agreement could reopen the Strait of Hormuz and ease pressure on global trade and energy markets, though optimism partially returned later in the afternoon after Axios reported that negotiators had reached a proposed 60-day memorandum of understanding.
According to the report, which cited US officials and a regional mediation source, the arrangement would extend the ceasefire and open negotiations surrounding Iran’s nuclear programme, although President Donald Trump has yet to approve the proposal formally.
“This is an agreement to get everybody to the table. We will work out the details in the negotiations,” one US official told Axios.
Across the Atlantic, Wall Street presented a mixed picture with the Dow Jones Industrial Average marginally lower while the S&P 500 rose 0.5% and the Nasdaq Composite gained 0.6%.
Investors were also digesting fresh US inflation data after the Federal Reserve’s preferred inflation gauge recorded its largest annual increase since 2023 in April, reinforcing concerns that geopolitical disruption could complicate the path for future interest rate cuts.
Defence stocks remained among the strongest performers in London as traders continued positioning around heightened geopolitical tensions. Babcock International climbed 4.1% while BAE Systems added 2.7%.
BT Group fell 3.5% after the Financial Times reported that the UK government would oppose any attempt by Bharti Enterprises to raise its stake in the telecoms company above 24.95%, citing a government official familiar with the matter.
On the FTSE 250, PPHE Hotel Group surged 22% after Fattal Hotel Group confirmed it had submitted a takeover proposal for the company.
The Tel Aviv-based hotel operator, which already owns roughly 4% of PPHE, offered £22 per share in a deal valuing the Guernsey-registered owner of the Park Plaza and art’otel brands at around £930 million.
Metro Bank gained 5.6% after RBC Capital Markets raised its price target on the lender to 195p from 170p, arguing the bank appears “better shielded from UK political risk”.