By Tharuniyaa Lakshmi

(Reuters) - London shares extended gains on Wednesday, as oil prices retreated and offered some relief to rattled global markets, while investors awaited the ​U.S. Federal Reserve rate decision later in the day.

The Middle East war, in ​its third week, showed no signs of easing as Israel and ⁠Iran intensified attacks following the killing of Tehran’s security chief. Oil, however, fell after Iraq ​resumed exports through the Ceyhan pipeline.

UK's blue-chip FTSE 100 (.FTSE) was up 0.3% by 1044 ​GMT, rising for the third consecutive day, while the mid-cap FTSE 250 (.FTMC) rose 1%.

Aerospace and defence (.FTNMX502010) jumped 2% and financials (.FTNMX301010) added 1.9%, leading the day’s gains. 

The energy sector (.FTNMX601010) fell 0.6% from Tuesday's record ​high. Ithaca Energy (ITH.L) dropped 5.2% after the oil and gas producer swung to an ​annual

Meanwhile, markets expect the Fed to keep rates unchanged. Investors will closely parse the Fed's outlook ‌for ⁠any signals on future monetary policy direction.

At home, British government borrowing costs fell to their lowest in a week, though they remain higher than before the conflict amid worries about inflation and uncertainty over further Bank of England rate cuts.

Most economists polled by Reuters abandoned their calls ​for a March 19 BoE ​rate cut and ⁠now expect a 25‑basis‑point trim in April or June.

“Despite energy market developments, we see one 25-bp cut to the BoE’s policy rate on ​the cards late this year. Moreover, we see fears of ​a rate ⁠hike by the BoE as overdone, given the tendency for central banks to ‘look-through’ energy shocks,” said Grant Slade, economist at Morningstar.

"We expect the BoE to hold Bank Rate steady at ⁠3.75% at ​tomorrow's MPC meeting."

Among individual stocks, Diploma (DPLM.L) jumped 18.2% ​to a record high after the technical products and services distributor raised fiscal year 2026 guidance.

IT firm Softcat (SCTS.L) rose ​8.9% after raising its annual profit forecast.

Reporting by Tharuniyaa Lakshmi in Bengaluru; Editing by Harikrishnan Nair

Reuters report

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