UK mid-caps drop as political uncertainty and Middle East concerns hit sentiment

* FTSE 100 ends flat, recouping earlier losses

* Long-term UK borrowing ​costs at ⁠highest level in nearly 30 years

* Banks, rate-sensitive ​homebuilders worst hit

* UK mid-caps clock biggest one-day fall in over six weeks (Updates after markets close)

May ​12 (Reuters) - ‌British mid-caps slumped on Tuesday, as investors were rattled by the uncertainty surrounding Prime Minister Keir Starmer's future, while ⁠renewed concerns about the war in the Middle East exacerbated inflation ⁠worries.

Starmer defied calls to resign, telling ​ministers he would get on with governing despite a "destabilising" 48 hours of growing calls to set out a timetable for his departure after a drubbing in local elections.

His position looks fragile because more than 80 ​Labour lawmakers have ‌publicly called for him to set a resignation date so the party could install a new leader in an orderly manner.

"Increased political risk is intensifying pressures on UK financial conditions, already noted as the tightest among major economies," Evercore ISI analysts said in a note.

"The potential for prolonged uncertainty may ​hinder investment and exacerbate recession risks."

BORROWING COSTS RISE

The domestically focused mid-cap FTSE 250 dropped 1.5%, clocking its ‌biggest one-day fall in over six weeks. The pound also weakened 0.6% against the dollar.

Long-term UK borrowing costs surged to their highest level in nearly ‌30 years, driven by concerns that a potential successor to Starmer might adopt a more left-wing stance and advocate for increased spending, despite Britain's already strained finances.

The internationally exposed blue-chip FTSE 100 meanwhile, ended flat ​at 10,265.32 points after falling as much as 1.1% earlier in the day.

Bank stocks fell 2%, dragged lower by a ‌5.6% decline in shares of Metro Bank and a 3.3% drop in Barclays.

Aerospace and defence stocks also slipped 2%, while the rate-sensitive real estate sector fell 3.1%.

Defensive sectors including healthcare, food and beverages and personal care all rose, offsetting ⁠losses on ⁠the broader index.

MIDDLE EAST STALEMATE INCREASES INFLATION RISK

Investors were also ‌concerned by the lack of progress in resolving the Middle East conflict, with U.S. President Donald Trump saying the ceasefire with ​Iran was "on life support".

Tehran ​rejected a U.S. proposal to end the conflict and stuck to a ‌list of demands that Trump described as "garbage".

Oil prices jumped, with Brent crude futures rising 3% and adding to fears of increasing financial burden on UK households.

British oil and gas stocks also climbed 1.1%.

Metro Bank

Barclays