UPDATE 1-FTSE 100 closes at three-week low as yields climb

The UK's blue-chip stock index reversed earlier gains to mark a three-week closing low on Thursday, as bond yields climbed on expectations that a jump in oil ‌prices driven by the Middle East conflict will stoke inflation.

The FTSE 100 index fell 1.5% to close at its lowest level since February 12, while the FTSE 250 midcap index dipped 0.9%. British government bond yields climbed sharply as investors further reduced their ‌bets on a Bank of England interest rate cut this month. Interest rate futures were pricing in a one-in-four ‌chance of a cut, down from around 80% a week ago. Energy giants Shell and BP each rose about 2% as oil prices jumped more than 3%, with the escalating U.S.-Israeli war with Iran disrupting supplies and shipping, driving some major producers in the Middle East to reduce output.

Airline ⁠stocks ​came under fresh selling pressure ⁠as surging oil prices pointed to higher fuel costs. Wizz Air slumped 11.3% after the carrier flagged a 50 million euro ($58 million) hit to its ⁠net profit from the war in Iran. Shares of EasyJet fell 5% and British Airways-operator IAG dropped 3.6%. Reckitt fell 5.8% after the ​maker of Durex condoms said it expected a challenging trading environment in Europe to continue, while homebuilder Taylor Wimpey ⁠lost 1.3% after it warned that profits would fall this year as build cost inflation and softer pricing squeezed margins.

PageGroup tumbled 15% after the ⁠recruiter ​slashed its dividend, reported a sharp drop in annual profit and warned the outlook remained uncertain for the jobs market. A BoE survey showed UK employers' expectations for wage growth held at their joint-lowest in nearly four years in February. Domestic ⁠economic data this week has been mixed. Activity in Britain's construction sector contracted for the 14th month in a row ⁠in February, in contrast ⁠to a more upbeat picture painted by the services PMI. Rentokil was a bright spot, jumping 10.7% to lead the FTSE 100, after the pest control firm reported a rise ‌in annual adjusted pretax ‌profit.