Susannah Streeter, chief investment strategist at Wealth Club, said markets remain “cautious given the twists and turns during this conflict.”

Despite the sharp drop in crude oil, “there is still significant uncertainty in these prices and reluctance about whether the negotiations will lead to a lasting breakthrough,” he added.

The conflict between the United States and Iran – and its impact on oil – has raised the cost of fuels such as gasoline and diesel in many countries.

This often has knock-on effects on other prices, such as food prices, as businesses pass on the higher costs they face to customers, and this can drive up the inflation rate.

Higher inflation raises the possibility of central banks raising interest rates in a bid to keep price increases in check.

In June, the European Central Bank opted to raise its key eurozone interest rate for the first time in almost three years, saying the conflict was “generating inflationary pressures.”

Before the war with Iran began, there were expectations that the Bank of England would cut rates this year.

However, no cuts are now expected and financial markets are currently predicting a rate hike towards the end of the year.

The Bank of England holds its final interest rate meeting this week, and is expected to keep its key rate unchanged at 3.75%.