April 1 (Reuters) - London's main indexes closed higher on Wednesday after U.S. President Donald Trump signalled that the Iran war could end soon, prompting investors to scale back expectations for further interest rate hikes by the Bank of England.
The blue-chip FTSE 100 closed up 1.8%, while the midcap FTSE 250 climbed 2.2%. On Tuesday, both the indexes marked their biggest monthly drop since 2020 on fears that the war-led increase in oil prices will stoke inflation.
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The United States will end its war on Iran fairly soon and could return for "spot hits" if needed, President Donald Trump told Reuters on Wednesday, hours before he was scheduled to make a primetime address to the nation.
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Interest rate futures were fully pricing in one 25 basis-point increase in the BoE's bank rate by the end of 2026, and the possibility of a second compared, with two or three hikes previously.
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Bank of England Governor Andrew Bailey said that markets were still getting ahead of themselves by pricing in interest rate hikes by the central bank, which wanted to avoid adding to the damage Britain's economy would face from the Iran war.
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Most FTSE 350 sub-sectors traded in the green except energy, which fell from record highs, down 4.2% after oil slid amid Middle East volatility.
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Aerospace and defence also added to gains, up 5.7%, providing the biggest boost to the benchmark index.
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Heavyweight banks also rose 5.2%, with NatWest Group, TBC Bank Group and Lloyds Banking Group up between 5.4% and 5.8%.
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Prime Minister Keir Starmer said that the global instability caused by the Iran war meant Britain should pivot to focusing on closer economic and defence ties with Europe.
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Britain's food prices will be rising by almost 10% by the end of 2026 due to the Iran war, the country's food and drink manufacturers' lobby warned, around three times faster than its previous forecast.
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British factory cost pressures soared in March, and delivery delays - due to ships avoiding the Strait of Hormuz - were the longest since mid-2022, according to an S&P Global survey.
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Berkeley fell 9.6% after the home builder forecast that profit growth would slow through 2030. The firm said it would halt land purchases as the war and the risk of higher interest rates dampened hopes of a housing market recovery.
Reporting by Tharuniyaa Lakshmi in Bengaluru; Editing by Harikrishnan Nair and Alex Richardson
Source: Reuters