London Daily

Focus on the big picture.
Thursday, Mar 05, 2026

Markets react to PM's political crisis and oil falls 10% as investors fret over global recession

Markets react to PM's political crisis and oil falls 10% as investors fret over global recession

A report by the Bank of England did nothing to soothe investor concern that Western economies are facing the real prospect of going into reverse as the year progresses.

Global financial markets are enduring a day of turmoil over rising fears of a recession for the US and Europe, while a slump in the value of the pound has accelerated amid the crisis engulfing Boris Johnson's government.

There was a rush for safe havens in Europe on Tuesday, later mirrored in the US, with stock markets plunging and the pound and euro coming under intense pressure from the dollar - a traditional place of shelter in volatile times.

Sterling hit its lowest level against the greenback since the start of the pandemic at $1.18.9 - a plunge of almost two cents on the day - while the single currency slumped to a 20-year low versus the dollar.


The pound's value barely moved when it emerged that Sajid Javid and Rishi Sunak had quit their government roles, leaving the UK without a health secretary or chancellor and the PM clinging precariously to power.

Traders reported that while a strong dollar was evident in the currency market, there were particular concerns in Europe over mounting gas prices.

However Norway, the second-largest supplier on the continent after sanctions-hit Russia, later alleviated fears around tightness of supply after a union claimed the country's government had used its power to impose a settlement and end a strike that had threatened crucial exports.

The Bank of England also added to the general gloom when its latest Financial Stability Report warned that the economic outlook for the UK and the wider world had darkened because of the backdrop of surging inflation - much of it energy linked.

It told UK banks to ramp up capital buffers - a requirement for cash to be held in reserve - to help them withstand the slowdown ahead.

The growing fears of an inflation-led slump did help Brent crude oil, which reached 14-year highs in the wake of Russia's invasion of Ukraine, fall by more than 10% on the day to $101 a barrel in anticipation of falling demand.


A sustained period around that level could help bring down the cost of fuel at the petrol pumps but there are many other factors at play for forecourt costs despite accusations from motoring groups that retailers had already been slow to pass on falling wholesale costs.

Stock markets were widely down by more than 2% across Europe.

The FTSE 100 in London closed the day 2.9% lower at 7,025 points, with mining and energy stocks enduring the worst of the pain.

It meant that £54bn was erased from the market value of the index.

Chris Beauchamp, chief market analyst at online trading platform IG, said there was evidence of a 4th July bank holiday hangover.

"The return of US traders from their holiday has dealt the death blow to hopes of a European market rally that lasts longer than about 24 hours.

"This recurrence of selling has put indices across the board into the red, as growth and inflation fears return right on cue.

"Normally July provides some welcome relief to markets after a choppy June, but so far the instinct to sell any bounce, no matter how small, remains all-encompassing," he wrote.

Newsletter

Related Articles

0:00
0:00
Close
Iran Conflict Strains U.S.–U.K. Alliance as Trump and Starmer Clash Over Military Strategy
UK Interest Rates Could Rise Above Four Percent Again if Energy Shock Continues, Think Tank Warns
Starmer Defends Britain’s Iran Strategy as Badenoch Urges Stronger Military Support
Labour MP Says She Saw No Sign Husband Broke Law After Arrest in China Espionage Investigation
UK Jobless Rate Overtakes Italy’s for First Time in Years as Labour Market Weakens
United Kingdom Suspends Student Visas for Four Countries in Unprecedented Immigration Move
Campaigners Warn UK Student Visa Ban Could Push Migrants Toward Dangerous Channel Crossings
First U.K. Charter Flight for Stranded Nationals Set to Depart Oman Amid Middle East Crisis
France and United Kingdom Deploy Warships to Eastern Mediterranean as Middle East Conflict Escalates
U.K. Arrests Three Men Including Lawmaker’s Partner in Suspected China Espionage Investigation
Trump Says UK–US ‘Special Relationship’ Is Diminished Amid Middle East Dispute
UK Economic Forecasts Face Fresh Strain from Middle East Conflict and Rising Energy Costs
UK Reaffirms Close US Ties After Trump’s Public Criticism
Reeves Stresses Stability and Fiscal Discipline in UK Budget Update as Growth Outlook Shifts
UK Deploys Royal Navy Destroyer HMS Dragon to Cyprus After Drone Strike on RAF Base
Green Party Surges Past Labour in New UK Poll as Traditional Party Support Crumbles
Majority of Britons Oppose U.S. Use of UK Military Bases in Iran Conflict
UK Intensifies Evacuation Efforts from Oman, Working with Airlines to Boost Flight Capacity
Trump Condemns UK and Spain in Unusually Sharp Rift Over Iran Military Action
Trump Repeats UK Claims That Diverge from Verified Facts Amid Diplomatic Strain
UK Arrests Prominent Figures Linked to Epstein Network as Questions Mount Over US Action
Trump Says UK ‘Took Far Too Long’ to Approve Use of Airbases for Iran Strikes
Scope of Britain’s Role in the Expanding Middle East Conflict Comes Under Scrutiny
Trump Says He Is ‘Very Disappointed’ in Starmer Over Iran Comments
U.S. Embassy in Riyadh Struck by Drones Amid Escalating Iran Conflict
Starmer Confronts Strategic Test After Drone Strike Near British Base in Cyprus
Rolls-Royce Chief Signals Openness to Germany Joining UK-Led Fighter Jet Programme
UK Stocks Slip as Escalating Iran Conflict Triggers Global Market Selloff
UK Overhauls Asylum System to Make Refugee Status Temporary
Starmer Warns of ‘Reckless’ Iranian Strikes Amid Escalating Regional Tensions
British Base in Cyprus Targeted as Drones Intercepted Amid Expanding Iran Conflict
Starmer Diverges from Trump on Iran Strategy, Rejects ‘Regime Change from the Skies’
U.S. and Israel Intensify Strikes on Iran as Conflict Expands to Lebanon and Gulf States
Violent Pro-Iranian Protesters Storm U.S. Consulate in Karachi
Missile Debris Sparks Fires at Dubai’s Jebel Ali Port Near Palm Jumeirah
Iran Strikes U.S. Fifth Fleet Headquarters in Bahrain Amid Wider Gulf Retaliation
When the State Replaces the Parent: How Gender Policy Is Redefining Custody and Coercion
Bill Clinton Denies Knowing Woman in Hot Tub Photo During Closed-Door Epstein Deposition
Former U.S. President Bill Clinton Testifies on Ties to Jeffrey Epstein Before Congressional Oversight Committee
Dyson Reaches Settlement in Landmark UK Forced Labour Case
Barclays and Jefferies Shares Fall After UK Mortgage Lender Collapse Rekindles Credit Market Concerns
Play Exploring Donald Trump’s Rise to Power by ‘Lehman Trilogy’ Author to Premiere in the UK
Man Arrested After Churchill Statue Defaced in Central London
Keir Starmer Faces Political Setback as Labour Finishes Third in High-Profile By-Election
UK Assisted Dying Bill Set to Fall Short in Parliament as Regional Initiatives Gain Ground
UK Defence Ministry Clarifies Position After Reports of Imminent Helicopter Contract
Independent Left-Wing Plumber Secures Shock Victory as Greens Surge in UK By-Election
Reform UK Refers Alleged ‘Family Voting’ Incidents in By-Election to Police
United Kingdom Temporarily Withdraws Embassy Staff from Iran Amid Heightened Regional Tensions
UK Government Reaches Framework Agreement on Release of Mandelson Vetting Files
×