Oil prices fell sharply on Monday after the US paused its bombing campaign against Iran around the strait of Hormuz, with traders betting the pause could avert a further escalation that would restrict global oil supplies. This matters because the Iran conflict has disrupted oil and gas flows from Gulf states since late February and, more recently, shipping through the Bab al-Mandab strait, feeding fears of a prolonged inflation shock that could force central banks to raise interest rates further.

Brent crude, the international benchmark, dropped 9% to below $88 a barrel, having spiked to $100 the previous week after Houthi attacks on Saudi Arabian oil tankers in the Red Sea. The retreat followed 13 days of US-Iran hostilities, with the US ambassador to the UN saying Donald Trump had opted to pause strikes to allow more room for diplomacy, though analysts such as Ole Hvalbye of SEB Research and John Evans of PVM cautioned that previous "ceasefire" rallies had proved short-lived. The fall in oil prices also pushed down UK government bond yields, with the 10-year yield dropping below 5% and the two-year yield falling to 4.35%, while higher oil prices remain a political concern for Trump ahead of November's midterm elections.