British equities continued to trade lower on Thursday as fresh violence in the Middle East and a cautious European Central Bank weighed on sentiment, and commodity markets swung sharply.
By 09:00 ET (13:00 GMT) the FTSE 100 was down 0.74%, broadening its earlier decline. Major continental peers moved lower too, with Germany’s DAX off 1.33% and France’s CAC 40 down 1.65%, both tracking deeper losses than seen earlier in the session. Sterling slid further against the dollar, trading 0.28% weaker at 1.3343.
The ECB left its deposit rate unchanged at 2.25%, as widely anticipated, but signalled that a further increase in September looks more likely. In its commentary the bank described the energy-price outlook as "highly volatile" and "well above" pre-conflict levels, adding that the full inflationary impact of the energy shock has yet to play out. The ECB raised its inflation projection for 2026 to 3.0% from 2.6% and trimmed its 2026 GDP growth forecast to 0.8% from 0.9%.
ING economist Carsten Brzeski characterised the decision as an attempt to avoid "rattling markets" but noted that, based on the ECB's own projections, a September hike appears likely unless oil prices retreat substantially.
Geopolitical developments added to market jitters. Kuwait’s Ministry of Defence reported a drone strike on the Al-Abdali border crossing with Iraq, saying the attack caused material damage but no casualties. Ministry spokesperson Saud Abdulaziz Al-Atwan said specialised teams had secured the area and were clearing debris from the drones.
On social media platform Truth Social, U.S. President Donald Trump said Houthi forces had struck two Saudi ships overnight after a year of relative restraint, labelling the Houthis "very disappointed" and warning that any further attacks would prompt the U.S. to hold Iran responsible as their "Surrogate and/or Proxy," with the prospect of "major military punishment" for Tehran.
Iranian Foreign Minister Abbas Araghchi posted on X that Iran’s "defense doctrine is clear: eye for an eye," warning that any aggression against Iranian infrastructure "will compel a powerful and decisive response" and that nations contributing to such actions would be "considered as legitimate targets."
Separately, the U.S.-Saudi civil nuclear cooperation agreement - the so-called "123" deal - has moved to Congress for review.
Commodities moved sharply on the escalation. Brent crude rose 5.9% to $99.65 a barrel and WTI gained 4.6% to $90.88, reflecting renewed supply concerns. Gold gave back earlier gains, with one reported price point showing gold down 2.1% at $4,064.20 and spot gold at $4,062.10, both extending intraday losses.
Market participants were also watching corporate news in the UK.
- easyJet said third-quarter profit fell 70%, citing disrupted travel demand from the Iran conflict and fuel price volatility, though the airline reported improving bookings ahead of the peak summer season. The carrier also remains in focus after backing Apollo’s takeover offer as the EU considers tighter airline ownership rules.
- Heathrow Airport reported a decline in first-half core profit, attributing the fall to higher tax-related costs and travel-demand uncertainty linked to the Middle East conflict, which offset resilient passenger numbers.
- Anglo American kept its full-year copper production guidance and lowered its 2026 copper cost guidance, while warning that its diamond and steelmaking coal divisions are expected to record first-half underlying losses. The miner said its merger with Teck Resources remains on track as it progresses the sale of De Beers and other portfolio changes.
- Centrica announced plans to cut about 1,300 jobs as part of a restructuring programme and reported an 18% decline in first-half adjusted core profit, citing asset disposals, production outages and weaker market conditions.
- Mitchells & Butlers said third-quarter like-for-like sales were flat, noting that a UK heatwave hurt demand at its food-led pubs, but year-to-date like-for-like sales were still up 2.2%.
- 3i Group reported that Action delivered 3.6% second-quarter like-for-like sales growth, helping net asset value per share to rise despite a foreign exchange headwind.
- AJ Bell said assets under administration rose 26% year-on-year to a record £121.5 billion, helped by customer growth and net inflows, and announced a cut to charges for its managed portfolio service from October.
With ECB guidance pointing to possible further tightening and energy prices remaining volatile amid the regional conflict, markets are likely to remain sensitive to updates on both policy and geopolitical fronts.