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The dispatch

It was no surprise, when equity markets first reacted to news of the strikes on Iran, that the U.K.'s FTSE 100 fell by less than all of its major continental European peers. What is often seen as the Footsie's weakness — its defensive assortment of pharmaceutical, utility, tobacco and consumer goods stocks — comes into its own at times of market volatility.

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City workers in Paternoster Square, where the headquarters of the London Stock Exchange is based, in the City of London, UK. Bloomberg | Bloomberg | Getty Images

So, for investors seeking to retain exposure to equities during times of conflict in the Middle East, the U.K. stock market is not a bad option. To that, it can be added that sterling usually suffers when currency investors seek safety plays in the U.S. dollar , the Swiss franc and the yen , as seen on Monday morning, when the pound initially fell to a three-month low against the greenback. Because FTSE 100 companies make around three-quarters of their revenues in currencies other than the pound — around 45% or so comes in dollars — sterling weakness tends to be good for the Footsie. This phenomenon has been understood for years by professional investors but hit home with the wider public when, in June 2016, the vote to leave the EU crushed the pound while the FTSE 100, after an initial sell-off, rallied.

Energy prices in focus

That is not to say the U.K. economy will not be hurt should this conflict prove protracted. The U.K. is a net importer of energy and, as such, vulnerable to spikes in global natural gas prices despite sourcing most imported gas from Norway rather than the Gulf. Accordingly, when QatarEnergy suspended LNG production at the Ras Laffan and Mesaieed industrial cities on Monday, U.K. natural gas futures rose by more than 40%. The rate of inflation in the U.K. spiked after the shock in energy prices following Russia's invasion of Ukraine in 2022 and remained at elevated levels for the next two years. The response from the government — to subsidize household energy bills — raised public borrowing hugely, the consequences of which are still being felt today, while higher inflation obliged the Bank of England to operate restrictive monetary policy. Should history repeat itself, that would not be good for gilts or, indeed, U.K. GDP.

Need to know

UK PM Keir Starmer suffers major blow after his party comes third in key vote. The result in Gorton and Denton, in Greater Manchester, is likely to intensify speculation about Starmer's position, Rolls-Royce raises outlook, plans up to $12 billion share buyback as engine demand boosts growth. Rolls-Royce shares have been on a tear over the past few years amid growth in all three of its businesses: civil aerospace, defense, and power systems. Europe struggles to be heard as the war on Iran escalates. Few European officials were told in advance about the U.S. and Israeli strikes on Iran, a senior lawmaker with the bloc told CNBC. — Holly Ellyatt

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