UK's FTSE 100 closes at 2-month low as investors weigh BoE rate decision and Iran war

(Updates to market close)

* FTSE 100 down 2.4%

* FTSE 250 hits near 4-month low

* Bank of England keeps rates unchanged in unanimous vote

* HSBC (HSBC) considers cutting up to 20,000 jobs, Bloomberg reports

By Tharuniyaa Lakshmi

March 19 (Reuters) - London's main indexes closed at multi-month lows on Thursday after the Bank of England's unanimous decision to leave rates unchanged, while the intensifying Middle East conflict also suppressed risk appetite.

The blue-chip FTSE 100 finished at its lowest in about two months, down 2.4%.

The mid-cap FTSE 250 was also down 2.4%, its lowest level since November last year. The BoE kept borrowing costs on hold as expected, warning of inflation risks from the war in the Middle East. Some of the policymakers also raised the prospect of raising rates.

"A low interest rate environment is beneficial for taxpayers and businesses alike, but the risk of inflation is a more important battle at this point," said Nick Saunders, CEO of online investment platform Webull UK.

"The Bank cannot afford to fight a battle on two fronts."

CENTRAL BANKERS ARE CAUTIOUS

Traders are pricing in two 25-basis-point rate hikes by the year-end. Meanwhile, the European Central Bank kept its key interest rate unchanged, also acting cautiously because of the war. On Wednesday, the U.S. Federal Reserve held rates steady and stuck to its projection for one cut in 2026.

In the UK market, the energy sector was the only one to trade in a positive territory, rising 1.6% as oil prices jumped after Iran attacked energy facilities across the Middle East following Israel's strike on its South Pars gas field, a major escalation in the war. BP gained 4.9%. The oil giant agreed to sell its Gelsenkirchen refinery to Klesch Group and raised its cost-cutting target. Earlier in the day, data showed that British wages rose at their slowest pace since late 2020 in the three months to January, according to official data that also suggested a weakening in employment might have bottomed out before the start of the war in the Middle East.

Of the 100 stocks on the FTSE 100, 97 finished in the red. Metal miners and banks were down 7.8% and 4.3% respectively, making them the day's worst performers. HSBC (HSBC) dropped 3.1% after Bloomberg reported that the bank is considering job cuts of up to 20,000 roles.

(Reporting by Tharuniyaa Lakshmi in Bengaluru; Editing by Nivedita Bhattacharjee and Barbara Lewis)