Investing.com — British stocks slipped on Thursday, dragged lower alongside broader European markets as a fresh exchange of U.S.-Iranian strikes rattled ceasefire hopes and the ECB’s chief economist warned energy inflation could prove stickier than markets had priced in.
As of 03:26 ET (07:26 GMT), the fell 0.92%, while Germany’s lost 0.34% and France’s declined 0.41%. Sterling edged lower, slipping 0.18% to $1.3402.
The selloff came after the U.S. military carried out new defensive strikes near Bandar Abbas on Wednesday, targeting a ground control station it said was about to launch drones at commercial and military shipping in the Strait of Hormuz.
Iran’s Revolutionary Guards responded before dawn Thursday, saying they struck the U.S. air base from which the attack originated, while Kuwait reported its air defenses were intercepting missiles and drones, the most direct cross-fire in days.
The strike exchange overshadowed what had appeared to be gathering diplomatic momentum. U.S. President Donald Trump told reporters at his Cabinet meeting that Iran was “negotiating on fumes,” adding “maybe we have to go back and finish it, maybe we don’t,” while Secretary of State Rubio said there had been “progress and interest” toward an agreement and that diplomacy remained Washington’s first option.
The White House also flatly denied an Iranian state television report purporting to show a draft “Islamabad Framework” memorandum under which Tehran would manage Strait transit, calling it “a complete fabrication.”
Hard-line signals from Tehran compounded the uncertainty. Iran’s Supreme National Security Council said its stockpile of enriched uranium was not on the negotiating table, while a senior Iranian lawmaker warned that even a US agreement “would not mean the end of the war.”
Deputy secretary Ali Bagheri Kani said all frozen Iranian assets must be returned “fully and unconditionally,” a demand Trump has already ruled out.
Adding to longer-term inflation concerns, ECB chief economist Philip Lane said at a conference hosted by the BOJ and its think tank in Tokyo on Thursday that the energy shock stemming from the Middle East conflict would likely have a persistent impact on inflation even if the crisis were resolved quickly.
Lane warned of “second-round effects” as countries rebuild inventories and diversify energy supplies. Markets have fully priced in two ECB rate hikes and see roughly even odds of a third.
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