By Tharuniyaa Lakshmi March 18 (Reuters) - London shares extended gains on Wednesday, as oil prices retreated and offered some relief to rattled global markets, while investors awaited the U.S.
UK stocks dip as Middle East tensions drive oil higher; Fed decision looms
Market Overview and Key Drivers
By Tharuniyaa Lakshmi
March 18 (Reuters) - The UK's main equity indexes fell on Wednesday, erasing earlier gains, as oil prices reversed course and headed sharply higher amid escalating tensions in the Middle East, while investors awaited U.S. Federal Reserve rate decision later in the day.
Performance of Major UK Indexes
The blue-chip FTSE 100 closed 0.9% down on the day after starting the week on higher note, while the mid-cap FTSE 250 fell 0.5%.
Impact of Middle East Conflict on Oil Prices
The Middle East conflict, now in its third week with no sign of easing, as a strike hit Iran's South Pars gas field - the first reported attack on its Gulf energy infrastructure. The escalation prompted Tehran to threaten retaliation, sending oil prices surging 5%.
Sector Highlights
Consumer Staples Under Pressure
Consumer staples weighed most heavily on the FTSE 100, dragged down by Unilever, which slipped 3.4% after Bloomberg reported the consumer goods giant was weighing a separation of its food assets.
Notable Stock Movements
Among individual stocks, Diploma jumped 17.8% to a record high after the technical products and services distributor raised fiscal year 2026 guidance.
Ithaca Energy fell 6.6% after the oil and gas producer swung to an annual net loss.
Global Economic Factors
U.S. Inflation and Federal Reserve Outlook
Across the Atlantic, U.S. producer prices rose by the most in seven months in February, further stoking inflation fears amid climbing shipping and energy costs.
Markets expect the Fed to keep rates unchanged. Investors will closely parse the Fed's outlook for any signals on future monetary policy direction.
Bank of England Policy Expectations
At home, market participants will also watch the Bank of England's rate decision on Thursday, with most economists polled by Reuters having abandoned their calls for a rate cut.
"Despite energy market developments, we see one 25-bp cut to the BoE's policy rate on the cards late this year. Moreover, we see fears of a rate hike by the BoE as overdone, given the tendency for central banks to 'look-through' energy shocks," said Grant Slade, economist at Morningstar.
"We expect the BoE to hold Bank Rate steady at 3.75% at tomorrow's MPC meeting."
(Reporting by Tharuniyaa Lakshmi in Bengaluru; Editing by Harikrishnan Nair and Leroy Leo)
