LONDON MARKET CLOSE: Pound wobbles, bonds suffer as Starmer battles on

Tue, 12th May 2026 17:05

(Alliance News) - Stocks struggled on Tuesday, although blue-chips proved resilient, amid a triple whammy of domestic political strife, surging US inflation and a lack of progress in the Middle East.

The FTSE 100 closed down just 4.11 points at 10,265.32. The FTSE 250 ended down 341.66 points, 1.5%, at 22,466.20, and the AIM All-Share fell 11.75 points, 1.4%, at 810.66.

The Cboe UK 100 ended down 0.3% at 1,019.22, the Cboe UK 250 was 2.0% lower at 19,389.80, and the Cboe Small Companies Index ended down 0.4% at 18,261.54.

The pound fell to USD1.3505 on Tuesday afternoon from USD1.3651 on Monday. Against the euro, sterling was lower at EUR1.1517 from EUR1.1584 on Monday.

The yield on UK 10-year gilts traded at 5.10%, up from 5.01% the day before.

UK Prime Minister Keir Starmer defied calls for him to quit, despite a growing number of Labour MPs demanding that he steps aside.

"The Labour Party has a process for challenging a leader and that has not been triggered," Starmer told ministers during crunch talks over his future, as no one person has stepped forward to challenge him yet.

"The country expects us to get on with governing. That is what I am doing and what we must do as a cabinet," he added.

More than 80 of Labour's 403 members of parliament have now called for Starmer to quit immediately, or to set out a timetable for his resignation, including some ministers.

Banks sold off, amid reports of a possible windfall tax on the sector should there be a change at the top of government.

"Banks narrowly avoided a higher tax rate at the last budget, but our base case now assumes the UK banking surcharge to increase from 3% to 5%," said the banking team at JPMorgan.

NatWest fell 3.2%, Lloyds Banking Group dipped 4.4% and Barclays declined 3.6%.

Meanwhile, the surging bond yields weighed on interest rate sensitive housebuilders with Barratt Redrow down 4.1% and Taylor Wimpey 2.4% lower.

Adding to the uncertain mood, another spike in the oil price as the impasse in the Middle East carried on.

Iran's chief negotiator said Tuesday that Washington must accept Tehran's latest peace plan or face failure, after US President Donald Trump warned a truce was on the brink of collapse.

"Relations between Washington and Tehran appear to be more strained than at any time since the original ceasefire was announced just over a month ago," observed David Morrison at Trade Nation, suggesting that hostilities could "resume at any time".

Brent crude for July delivery was trading at USD108.07 a barrel on Tuesday, up compared to USD103.70 at the time of the equities close in London on Monday.

In Europe on Tuesday, the CAC 40 in Paris ended down 1.0%, and the DAX 40 in Frankfurt declined 1.6%.

In New York, the Dow Jones Industrial Average was down 0.5%, the S&P 500 fell 1.0% while the Nasdaq Composite was 1.7% lower.

The yield on the US 10-year Treasury widened to 4.46% on Tuesday from 4.39% on Friday. The yield on the US 30-year Treasury stretched to 5.02% from 4.97%.

The impact of the Iran war was reflected in soaring US inflation figures for April.

Annual CPI inflation sped up to 3.8% in April from 3.3% in March, above FXStreet-cited expectations of a 3.7% rise.

Monthly, energy costs were up 5.6% in April after a 21.3% jump in March.

Excluding food and energy costs, core CPI was up 2.8% on-year in April, up from 2.6% in March and higher than an expected 2.7%.

Analysts explained that much of the upside in core inflation came from a spike in shelter costs.

TD Economics said the numbers reinforce why the Fed needs to remain "patient".

"Even assuming a 'more normal' reading on shelter prices last month, core inflation would've still firmed relative to March. With secondary price effects from higher energy prices likely to intensify in the months ahead, we're likely to see core measures of inflation drift a bit higher and hover around 3% through year-end," the broker said.

While Bank of America said the latest increase means inflation is getting "very uncomfortable" for the Fed.

Following the data, Fed futures now place a 60% probability of a rate hike by March next year.

The euro traded slightly lower against the greenback, at USD1.1729 on Tuesday from USD1.1782 on Monday. Against the yen, the dollar was trading at JPY157.73, higher than JPY157.01.

Back in London, Vodafone fell back 7.0% after mixed full-year results with adjusted earnings short of hopes but adjusted cash flow ahead.

"In the stock market it's often said that it's better to travel than arrive, hence why shares in Vodafone dipped on robust-looking full-year results after a strong rally in the past 12 months," said Dan Coatsworth, head of markets at AJ Bell.

Vodafone shares have risen 60% in the last 12 months.

Intertek led the risers, up 6.4%, as it said it was "reviewing" the latest takeover proposal from suitor EQT Fund Management Sarl.

EQT's latest, and final, proposal is worth GBP60 per share in cash, GBP61.077 including a final dividend. Together with the dividend, the tilt values Intertek at GBP9.40 billion.

Intertek has turned down three previous approaches from EQT.

On the FTSE 250, Greggs rose 8.0% after reporting higher sales in the opening weeks of 2026 and maintaining full-year expectations.

But Wickes plunged 12% after reporting mixed trading as wet weather weighed on retail demand at the start of 2026.

Gold traded lower at USD4,663.87 an ounce on Tuesday, from USD4,733.27 on Monday.

The biggest risers on the FTSE 100 were Intertek, up 320.00p at 5,300.00p, British American Tobacco, up 255.00p at 4,634.00p, Compass Group, up 1.74p at 31.93p, Imperial Brands, up 104.00p at 2,832.00p and London Stock Exchange Group, up 328.00p at 9,348.00p.

The biggest fallers on the FTSE 100 were Vodafone Group, down 8.45p at 111.95p, 3i Group, down 116.00p at 2,400.00p, St James's Place, down 52.50p at 1,154.50p, Lloyds Banking Group, down 4.28p at 94.06p and Marks & Spencer, down 13.60p at 308.90p.

Wednesday's global economic calendar has eurozone industrial production and GDP data, the King's Speech in the UK and US PPI figures.

Wednesday's local corporate calendar has a trading statement from Spirax Group.

By Jeremy Cutler, Alliance News reporter

Comments and questions to newsroom@alliancenews.com

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