London’s benchmark stock indexes fell to more than one-week lows on Tuesday, pressured by global market weakness, rising expectations of interest rate hikes, and renewed political uncertainty in Britain after Prime Minister Keir Starmer’s resignation.
The blue-chip FTSE 100 dropped 0.7% by 0919 GMT to its lowest level since June 12, while the domestically focused FTSE 250 declined 1.8%, hitting its weakest point since June 10.
The decline came as investors turned cautious amid a more hawkish outlook for interest rates in both the United States and the United Kingdom.
Market sentiment was also weighed down by uncertainty over who will lead Britain next, with investors closely watching developments in domestic politics.
Mining stocks lead market declines
Heavyweight mining shares were among the worst performers of the session as prices of gold, silver, and copper moved lower.
Precious metal miners and industrial metal miners both fell around 5%, leading sectoral losses across the London market.
Among the biggest drags on the FTSE indexes were Antofagasta, which fell 6.5%, and Fresnillo, which dropped 5.6%.
The declines reflected broader weakness in commodity-linked stocks as investors reduced exposure to risk-sensitive sectors.
The pressure on mining counters added to the wider selloff in equities, with markets globally struggling to maintain momentum as the prospect of tighter monetary policy dampened risk appetite.
Rate hike expectations weigh on risk sentiment
Investor caution intensified after traders raised their expectations for further rate hikes under the new US Federal Reserve Chair, Kevin Warsh.
Markets are now largely pricing in around two 25-basis-point rate hikes by the end of the year, up from one earlier this month.
In Britain, markets are also expecting tighter policy.
Data compiled by LSEG showed that investors are pricing in at least one 25-basis-point rate increase by the Bank of England in December.
The prospect of higher borrowing costs on both sides of the Atlantic has added pressure on equity markets, particularly on sectors tied closely to global growth and economic activity.
Rising rate expectations typically reduce appetite for riskier assets and can weigh on valuations.
Defensive sectors outperform
Despite the broad-based market weakness, a few defensive areas of the market managed to advance as investors sought relative safety.
Healthcare, pharmaceutical, and consumer staples stocks all rose more than 1%, bucking the broader trend.
These sectors are generally viewed as more resilient during periods of economic uncertainty, as demand for their products and services tends to remain more stable even when growth slows.
Their gains, however, were not enough to offset the heavy losses elsewhere in the market.
Political uncertainty remains in focus
Domestic politics also remained firmly on investors’ radar following Starmer’s resignation on Monday.
Attention has now shifted to the leadership race, with Andy Burnham widely expected to emerge as the next prime minister after former health minister Wes Streeting endorsed him.
Investors are particularly focused on Burnham’s fiscal stance at a time when Britain’s public debt has climbed to nearly 100% of economic output.
That backdrop has complicated policymaking for a succession of British prime ministers and remains a key issue for financial markets assessing the outlook for government spending and fiscal discipline.
The political uncertainty comes at a fragile moment for the economy.
Fresh data released on Tuesday showed that Britain’s services sector contracted in June at the fastest pace in nearly three-and-a-half years, adding to concerns about domestic economic momentum.
Bunzl rises after outlook upgrade, Telecom Plus slumps
Among individual stocks, business supplies distributor Bunzl was one of the top gainers on the FTSE 100.
Its shares rose 3% after the company lifted its annual revenue growth outlook, citing a strong first half supported by robust demand in North America and selective price increases.
In contrast, Telecom Plus tumbled 24%, making it one of the day’s sharpest fallers.
The decline came after the utility group said its new five-year investment plan would cut near-term profits as it responds to intensifying competition in the UK market.
The contrasting moves in Bunzl and Telecom Plus highlighted how company-specific updates continued to drive sharp swings in individual stocks, even as broader macroeconomic and political concerns dominated overall market direction.
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