FTSE 100 Struggles as Energy Prices Spike and Inflation Worries Rise

London's FTSE 100 faced a second day of losses on Tuesday, dragged down by inflation fears as energy prices soared. This comes amid diminishing expectations of interest-rate cuts, with significant drops in key banking stocks including HSBC, Barclays, and Lloyd's Banking Group.

At 1144 GMT, the FTSE 100 index fell 2.7%, marking its steepest single-day decline in almost a year. Simultaneously, the FTSE 250 midcap index experienced similar drops, reaching its lowest point in six weeks. The Office for Budget Responsibility is anticipated to lower its UK economic growth forecast, while finance minister Rachel Reeves is expected to emphasize commitments to stabilizing public finances in her upcoming budget update.

Analysts are watchful of how surging energy prices might revive inflation, as rising British government bond yields fuel caution over the likelihood of imminent Bank of England rate cuts. Market sentiment is further influenced by geopolitical tensions involving the U.S. and Israel, which could exacerbate inflationary dynamics.