FTSE 100 (UKX) Rockets Past 8,8500 as Iran Tensions and Stubborn UK Inflation Fuel Market Frenzy

London's blue-chip index defies geopolitical chaos and economic headwinds—because nothing says 'rational markets' like a rally built on conflict and sticky inflation.

Risk-On Despite the Drama

Investors shrugged off Middle East tensions and domestic price pressures, sending the FTSE 100 soaring past 8,8500. Because when has buying the dip during a potential oil shock ever backfired?

Inflation? What Inflation?

UK consumer prices still refuse to play nice with BoE targets—but who cares when equities go brrr? Traders are betting central banks will blink first (again).

The Cynic's Take

Another day, another market victory lap around fundamentals. At this rate, we'll be pricing stocks in hopium derivatives by Q3.

TLDR;

• The FTSE 100 remained stable despite geopolitical tensions and confusing inflation data from the UK.
• UK inflation held steady at 3.4% in May, but a reporting error by the ONS initially caused market confusion.
• Rising Middle East tensions, particularly between Israel and Iran, kept oil markets on edge but prices stayed flat.
• Tariff threats from Donald Trump pressured pharmaceutical stocks, with AstraZeneca and GSK among the top fallers.

The FTSE 100 hovered in positive territory on Wednesday, climbing 20.23 points to trade at 8,853, as investors balanced mixed economic data out of the UK with rising geopolitical risks in the Middle East.

Market participants digested news that UK inflation remained stubbornly above the Bank of England’s target, even as global concerns escalated amid rising tensions between Iran, Israel, and the United States.

Markets Stay Cautious as Middle East Risks Mount

Investors were rattled after Iran’s Supreme Leader Ayatollah Khamenei rejected U.S. calls for surrender, escalating tensions that have already seen Israel strike dozens of Iranian targets. In response, oil prices fluctuated throughout the day, with Brent crude reaching $76.78.

Moscow issued a stark warning against further U.S. intervention, saying it WOULD destabilize the entire region. Analysts noted that any disruption to the Strait of Hormuz could send shockwaves through global supply chains, driving up energy costs and putting renewed pressure on inflation worldwide.

While oil prices initially surged on the back of these developments, the gains flattened as the session progressed. Traders appeared wary of overreacting, with no clear indication yet of direct U.S. military involvement. Still, the market tone remained risk-averse.

Inflation Surprise Undermines BoE Rate Cut Expectations

In the UK, the Office for National Statistics confirmed that consumer inflation held steady at 3.4% in May, dashing hopes of a faster decline. Core CPI, which excludes volatile items like food and energy, also eased slightly but stayed well above the Bank of England’s 2% target. Services inflation, closely monitored by policymakers, dropped to 4.7% from 5.4%, a sharper decline than expected.

The data initially gave investors cause for optimism. However, confusion over a reporting error by the ONS, which initially mischaracterized the inflation trend, led to volatility. Analysts at S&P Global noted that recent payroll tax hikes and global tariff announcements may keep inflation higher for longer, complicating the BoE’s path forward. As a result, expectations for rate cuts have become less certain heading into Thursday’s policy decision.

AstraZeneca and GSK Weigh Down the Index

Despite the broader index ending in the green, notable declines among heavyweight pharma stocks capped gains. AstraZeneca dropped 1.4% and GSK lost 1.9% after U.S. President Donald TRUMP reiterated plans to impose tariffs on imported drugs. Trump told reporters these measures could take effect “very soon,” sparking fears that major drug exporters could see reduced U.S. demand.

This was enough to offset gains in other sectors, including a surprise bounce in shares of S&U and Tiger Royalties, which posted strong trading updates. Meanwhile, housebuilders and airlines also remained under pressure due to inflation-related concerns and higher energy costs.

UK Faces Business Headwinds

Away from the markets, Transport Secretary Heidi Alexander confirmed further delays to the HS2 rail project, calling it an “appalling mess” of mismanagement and wasted taxpayer money. With costs possibly exceeding £100 billion, the announcement reinforced concerns over the UK government’s fiscal credibility.

Elsewhere, AO World warned of weak performance in its mobile division, while CPP Group surged after announcing plans to exit legacy operations and focus on its Blink parametric insurance platform.

Taken together, the day reflected a market in limbo. Global conflict, persistent inflation, and mixed corporate signals left investors cautious, with few signs of strong momentum in either direction. All eyes now turn to the Bank of England’s Thursday meeting and further developments in the Gulf, as both could reshape the path forward for the FTSE 100.