FTSE 100 slips as oil surge lifts UK gilt yields to 1998 highs

The FTSE 100 fell 0.59% to 10,634.49 by 1000 GMT on Tuesday, touching a roughly two-month low. The FTSE 250 lost 0.46%. Banks and investment firms led the declines.

Brent crude rose above $108 a barrel amid concerns over Middle East supply, taking oil about 20% higher since the start of September. Energy stocks gained but broader market pressure from higher long-term yields weighed on the index.

Investors sold banks and investment managers in response to rising bond yields. Standard Chartered fell about 1.7% and Aberdeen was down roughly 2.6%. Miners of precious and industrial metals weakened after falls in gold and copper.

The 30-year UK gilt yield traded around 5.91%, a level last seen in 1998. The 10-year gilt hit its highest since 2007, and the US 10-year Treasury moved above 5%.

Markets expect the Bank of England to keep Bank Rate at 3.75% at its upcoming meeting, though traders have priced in a greater chance of further tightening later in the year. The rise in energy prices has increased the probability of a rate rise by November. Reports indicate the Bank may stop selling 20- and 30-year gilts and slow the pace of balance-sheet reduction.

Domestic data offered few signs of easing price pressure. Unemployment stayed at 4.9% for the three months to July. Payroll employment and vacancies continued to decline and wage growth slowed. Grocery inflation rose to 2.3% in the four weeks to Sept. 6, according to Worldpanel by Numerator.

AJ Bell strategist Danni Hewson warned rising oil costs are becoming harder for consumers to absorb and would be closely watched by the Bank of England at its meeting this week.

At the company level, Wickes jumped after reporting stronger third-quarter trading, while Trustpilot fell after keeping its earnings outlook unchanged despite solid revenue growth.

Energy producers posted gains but were not enough to lift the wider market, as selling in rate-sensitive sectors persisted.