The FTSE 100 dropped 1.6% on Thursday as investors weighed mixed signals from US-Iran negotiations, even as President Donald Trump talked up the chances of a deal. European peers also fell, while sterling firmed and defence and oil names moved on war-linked news.
Britain's blue-chip index fell as traders judged that Donald Trump's upbeat tone on Iran had run ahead of the negotiations themselves. The FTSE 100 fell 1.6%, while Germany's DAX declined 1% and France's CAC 40 dropped 1.2%. Sterling firmed, with GBP/USD rising 0.1% to 1.3611.
Trump talks up a deal, markets stay cautious
The caution came despite Trump telling reporters that talks with Tehran over the past 24 hours had been very good and that a deal was very possible. Washington and Tehran are working on a one-page, 14-point framework to restart peace talks, with discussions expected to begin next week in Pakistan.
A monthlong process would then seek to resolve disputes over Iran's nuclear ambitions and sanctions relief, though key disagreements over enrichment and inspections remain. Iran's foreign minister said officials would convey their response via Pakistani mediators, while other reports cited an Iranian official who dismissed the plan as an American wish list. Trump, meanwhile, said the U.S. had won the war and threatened strikes at a much higher level should negotiations collapse.
Defence and oil names track the conflict
The war continued to shape individual London shares. BAE Systems said it was on track for earnings growth of 9% to 11% this year, as the Iran conflict kept orders flowing into Britain's biggest defence contractor. Shell, by contrast, posted first-quarter adjusted earnings of $6.92 billion, beating forecasts of $6.36 billion, but trimmed its buyback to $3 billion after war-related damage to its Qatari Pearl gas plant.
Retail and travel names flagged strain instead. JD Sports warned profits would fall further in 2026/27 after like-for-like sales fell 2.3% in the first quarter, while IHG beat room-revenue estimates yet flagged that the conflict threatens to curb travel spending.
What comes next for the index
The outlook has steadied since the worst of the disruption. Morningstar says the FTSE 100 outlook has improved after the Iran war, with UK stocks looking to reclaim the record highs touched at the start of the year. The firm notes that UK rate cuts are off the table in July, according to Bank of England governor Andrew Bailey, and that futures markets show no rate increases for the rest of 2026.
Sources: Investing.com, Morningstar
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