British equities cap third losing week as Mideast war rages on

By Tharuniyaa Lakshmi

March 20 (Reuters) - London's main indexes closed lower on Friday and logged their third consecutive weekly decline, as the escalating Middle East war and surging oil prices deepened inflation fears and cemented expectations for the Bank of England to hike interest rates.

The blue-chip FTSE 100 .FTSE closed down 1.4%, while the mid-cap FTSE 250 .FTMC was down 1%. Both indexes also fell for a third straight session.

Oil prices rose more than 1% on the day as the three-week-old Iran war showed no signs of abating, with the U.S. preparing to send thousands of additional troops to the Middle East in coming weeks. O/R

British energy stocks .FTNMX601010 slipped 1.7%, but were still around record-high levels.

Aerospace and defence stocks .FTNMX502010 and banking shares .FTNMX404010 weighed the most on London's benchmark, falling 2.5% and 2%, respectively.

The BoE held rates at 3.75% at Thursday's policy meeting. Its warning that inflation posed a bigger risk than slowing growth pushed traders to price in a roughly 70% chance of a 25-basis-point hike by April and up to three quarter-point increases by year-end.

Barclays, J.P. Morgan and Morgan Stanley now see a higher chance of BoE hikes as early as April.

Fresh fiscal concerns emerged after Britain borrowed far more than expected in February, partly due to volatile debt-interest payments, just as the Iran conflict drove up funding costs and fuelled calls for higher public spending.

“Rachel Reeves must feel like she’s been squeezed between a rock and a hard place as the current geopolitical instability rams home the need to spend more on defence but also leaves ordinary workers at risk of another inflation burn," said Danni Hewson, head of financial analysis at AJ Bell.

Among other movers, Smiths Group SMIN.L plunged 9.8%, in its steepest single-day fall since 2021, after the engineering group missed half‑year organic revenue forecasts.

JD Wetherspoon JDW.L fell 10.6% after the pub chain said that its full-year profits may fall below market estimates after higher energy costs and wage-related taxes dragged first-half profit down by 37%.