London stocks ended lower on Friday as surging oil prices reduced risk appetite and investors turned increasingly cautious ahead of next week’s UK budget. The retreat marked a break in the FTSE 100’s two-week winning streak, while stronger inflation data and weaker consumer indicators added to uncertainty over the outlook for the British economy.

FTSE 100 Breaks Winning Streak

The FTSE 100 closed 0.3% lower at 10,690.36 points, recording its first weekly loss in three weeks. The mid-cap FTSE 250, meanwhile, gained 0.1% on Friday but posted its sharpest weekly decline in six weeks, reflecting broader investor caution across UK equities.

Most sectors declined as investors assessed the effects of higher energy prices and the potential consequences of tighter monetary policy. The combination of elevated oil prices and rising interest-rate expectations is particularly significant for companies exposed to domestic consumer demand, financing costs and operating expenses.

Energy Gains Offset Broader Sector Weakness

Energy shares advanced 3.9% as Brent crude crossed $115 a barrel, providing a significant source of support to the benchmark index. Higher crude prices can improve earnings expectations for major energy producers, helping offset weakness elsewhere in the market.

Other sectors faced more substantial pressure. Aerospace and defence shares fell 4.6% to their lowest level in more than five months. Rolls-Royce dropped 7.6%, its largest one-day decline since April 2025, while French rival Safran fell 10% after warning that slower aftermarket sales growth could extend into 2027. Banks declined 0.8%, while healthcare stocks fell 1.1%.

Inflation and Consumer Data Complicate Rate Outlook

Recent economic data have strengthened expectations for a Bank of England interest-rate hike in November. Price pressures exceeded forecasts in September, and markets are now fully pricing a rate increase, adding another challenge for UK companies and households already facing elevated costs.

At the same time, British retail sales volumes fell more than expected in September. Consumer confidence also weakened sharply in October, posting its steepest monthly decline since the early stages of the pandemic, according to separate data. The combination suggests that persistent inflation is occurring alongside pressure on consumer spending and sentiment.

UK Budget Becomes the Next Major Catalyst

Investors are now looking toward Finance Minister John Healey’s first budget next week for signals on fiscal policy and the government’s approach to the economy. The budget arrives at a sensitive moment, with markets already balancing higher oil prices, increased rate expectations and signs of weaker consumer momentum.

The coming sessions will therefore be shaped by the interaction between fiscal policy, inflation and global commodity prices. Investors will monitor the budget for measures that could influence household spending, business confidence and government finances, while continued strength in oil markets could further complicate the Bank of England’s policy outlook. The performance of energy shares versus more economically sensitive sectors will also provide an important gauge of how markets are positioning for the next phase of the UK economic cycle.