Oil Price Surge Sends UK Borrowing Costs Soaring, FTSE 100 Tumbles

The UK's FTSE 100 index plummeted to a two-month low on Tuesday as soaring oil prices triggered a surge in borrowing costs, weighing heavily on investor sentiment. The blue-chip index dropped 0.59% to 10,634.49 by 1000 GMT, while the FTSE 250 lost 0.46%. Banks and investment firms led the decline, with Standard Chartered down 1.7% and Aberdeen off 2.6%. Precious and industrial-metals miners also weakened as gold and copper prices fell.

AJ Bell's Danni Hewson noted that rising oil prices were becoming harder for UK consumers to absorb and would be firmly in focus when the Bank of England meets this week. The tension helps explain why gains in oil producers have not been enough to lift the wider index. Investors are instead marking down sectors exposed to borrowing costs, weaker household demand, and the prospect that rates stay restrictive for longer.

The 30-year gilt yield traded around 5.91%, close to levels last seen in 1998, while the 10-year yield has also climbed to its highest since 2007. The sell-off has been amplified by a broader rise in global bond yields, with the US 10-year Treasury moving above 5%. Surging oil prices have revived expectations for a possible increase in Bank Rate by November.