Oil Shock Sends UK Borrowing Costs Soaring, FTSE 100 Tumbles

The FTSE 100 plummeted to a two-month low on Tuesday as another surge in oil prices sent UK borrowing costs soaring, offsetting the usual boost that expensive crude gives London's heavyweight energy shares.

The blue-chip index fell by 0.59% to 10,634.49 by 1000 GMT, while the FTSE 250 dropped 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.

Rising oil prices are increasingly being treated as an inflation shock, rather than a boon to energy shares. 'Rising oil prices are becoming harder for UK consumers to absorb and will be firmly in focus when the Bank of England meets this week,' said AJ Bell's Danni Hewson. She noted that expectations for a near-term policy move had risen sharply as energy costs climbed.

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%.