UK stocks drop as Burnham challenge and rising oil frazzle nerves

* FTSE 100 records biggest one-day drop in over eight weeks

* Insurer ​Hiscox surges ⁠on reports of purchase offer

* British long-term borrowing ​cost hits highest since 1998

* Both FTSE 100 and FTSE 250 clock weekly losses (Updates after markets close)

May ‌15 (Reuters) - British equities dropped on Friday along with bonds and the pound as investors weighed a possible leadership challenge to ⁠Prime Minister Keir Starmer from Greater Manchester Mayor Andy Burnham, while ⁠also worrying about inflation risks.

Burnham said on ​Thursday he would seek to contest a parliamentary seat becoming vacant after a colleague decided to stand down. This could pave the way for Burnham to challenge Starmer, who has been under acute pressurefrom his party after Labour's ​poor performance ‌in local elections last week.

Investors worry that Burnham's "business-friendly socialism" could lead to more government spending and borrowing, straining Britain's already stretched public finances.

"Markets won't like it and they won't like the idea of the Labour party anointing a left-leaning PM whose fiscal views are well known – as are his views of the ​bond market," said Neil Wilson, investor strategist at Saxo UK.

The blue-chip FTSE 100 index closed 1.7% lower ‌at 10,195.37 points, its biggest one-day fall in over eight weeks, for a fourth straight weekly loss. The midcap FTSE 250 shed 1%.

British long-term borrowing costs ‌surged to 28-year highs on Friday while the pound lost 0.5% against the dollar.

Separately, global markets were spooked by the prospect of escalation in the Iran conflict after U.S. President Donald Trump said his patience with ​Tehran was running out.

Oil prices rose, with Brent crude futures rising more than 2% on the day. As an oil ‌importer, the UK faces the risk of higher inflation if disruption in the Strait of Hormuz persists and oil prices stay elevated.

The highly anticipated meeting between Trump and China's President Xi Jinping also produced no major breakthroughs ⁠on ending the ⁠war.

"Today we're seeing some disappointment because they didn't really go beyond ‌the nice words and the praise. We just have to digest that disappointment and see how things look coming into next week," said ​Evangelos Assimakos, senior investment ​director at Rathbones.

Among individual sectors, precious metal miners sank 7.7% as gold and ‌silver prices dropped sharply, while utilities, often treated as a bond proxy, lost 7.5%.

Among single stocks, Hiscox jumped 12.3% following media reports that Canada-based Intact Financial Corp was exploring a potential bid for the British insurer.

Hiscox