London plunges into correction territory as Trump gives Iran ultimatum

The FTSE (^FTSE) has now dropped by more than 11% from its record high set on 27 February, just before the war in Iran began.

Last Friday it dropped below 10,000 points, meaning it has lost all its gains for 2026.

A fall of 10% or more is classed as a correction.

Richard Hunter, head of markets at Interactive Investor, said:

Gold (GC=F) and silver (SI=F) prices started the week on the back foot again, selling off with the spectre of war in the Middle East causing inflation and interest rate-focused jitters for traders.

The current standstill in the Strait of Hormuz — one of the world’s most important shipping channels — is stoking fears of higher prices across the board. The blockage is affecting not only the price of energy, but also the passage of key fertilisers used to grow produce to the rest of the world and the shipping of helium, a gas used in the cooling of data centres. Oil (BZ=F, CL=F) prices shot up above $100 per barrel on Monday.

Meanwhile, gold (GC=F) futures dipped 7.7% to $4,223 an ounce. Spot gold also fell 5.2% to $4,258.99 per troy ounce. The yellow metal is 15.5% over the last five sessions.

Silver (SI=F) fell around 6.8% to trade at the $64.95 an ounce mark. The commodity’s price is down nearly 20% over the past five sessions.

“Markets are finally starting to wake up to the gravity of the potential for long-term impact on energy markets,” Neil Wilson, investor strategist at Saxo UK, said.

“I’ve repeatedly stressed that markets were under-pricing the risks for a variety of reasons and showed a degree of complacency about the war, but markets are starting to take notice. We are entering a new and very dangerous phase for financial markets.”

Traders are ramping up bets that the Bank of England (BoE) will raise UK interest rates four times this year to counter surging energy prices.

Before the conflict began, investors were expecting just two cuts, however, money markets are now pricing in 100 basis points of increases by the end of December.

This would lift rates back to 4.75%, up from the current 3.75% rate.

Last week, after Threadneedle Street left rates on hold, governor Andrew Bailey suggested that financial markets were getting ahead of themselves in expecting ​interest rate rises from the BoE this year.

The 10-year gilt yield climbed 0.06 percentage points on Monday morning to 5.05%, keeping borrowing costs at their highest level since 2008.

Since the conflict in the Middle East began, the 10-year yield has risen 0.8 percentage points, putting gilts on track for their worst month since the “mini-budget” crisis in 2022.

Meanwhile the two-year yield, which is sensitive to changes in interest rate expectations, rose 0.08 percentage points to 4.65%.

The gilt moves were “starting to look very excessive”, Derek Halpenny, head of research in global markets for Europe, the Middle East and Africa at MUFG, said, adding that the expectation of four rate rises was “way overdone”.

Sir Keir Starmer is set to hold a Cobra meeting on Monday to address the economic impact of the Iran war, having been warned that price rises are “inescapable”.

Cabinet ministers are expected to join, including chancellor Rachel Reeves, foreign secretary Yvette Cooper, energy secretary Ed Miliband, and the governor of the Bank of England, Andrew Bailey.

It comes amid rising concerns about the conflict in the Middle East and how this could affect the cost of living. As well as the economic impact, they will discuss energy security and the resilience of industry and supply chains alongside the international response.

On Sunday, the chief executive of Centrica, which owns British Gas, said global oil supplies are already down 20% because of the Iran war.

Chris O’Shea told BBC’s Sunday With Laura Kuenssberg programme:

Stocks in Asia tumbled overnight as Donald Trump dashed hopes for an early end to the war in Iran with a new ultimatum.

The US president has given Tehran until the end of Monday to reopen the Strait of Hormuz or risk strikes on the country’s power generation facilities. So far, there have been no signs of Tehran backing down.

The Nikkei (^N225) slumped 3.5% on the day in Japan, while the Hang Seng (^HSI) also feel 3.5% in Hong Kong. The Shanghai Composite (000001.SS) was 3.6% down by the end of the session.

In South Korea, the Kospi (^KS11) added 6.5% on the day.

Across the pond on Friday, Wall Street ended lower, with the S&P 500 (^GSPC) down 1.5% to close its fourth straight losing week, its longest such streak in a year. The tech-heavy Nasdaq (^IXIC) lost 2% and the Dow Jones (^DJI) dipped 1% .

Good morning, and welcome back to our markets live blog. As usual we will be taking a deep dive into what’s moving markets, and what’s happening across the global economy.

In terms of data we have US February Chicago Fed national activity index, January construction spending, Japan first survey of shunto results, Eurozone March consumer confidence. Central bank speakers include the ECB’s Escriva and Lane speak.

Elsewhere, prime minister Sir Keir Starmer faces the House of Commons’ Liaison committee

Here’s a quick snapshot of what’s on the agenda:

• 7am: Trading updates: Salzgitter

• 12.30pm: Chicago Fed National Activity Index for February

• 3pm: EU Consumer Confidence Flash for March