Oil and gold prices rose after US officials said an Israeli missile had hit Iran.

Brent crude, the international benchmark, rose 1.8% to $88 a barrel, while gold briefly neared a record high before falling back to nearly $2,400 an ounce.

Investors have been closely watching Israel's response to Iran's direct drone and missile attack last weekend.

There are concerns that a worsening conflict in the Middle East could disrupt oil supplies.

Oil prices had initially increased by 3.5%. However, gains were pulled back after Iranian state media claimed there was "no damage" in Isfahan province, where there were reports of explosions.

Sharp and sustained increases in oil prices risk fueling inflation. Countries depend heavily on the commodity, which is used to produce fuels such as gasoline and diesel.

Fuel and energy prices have been a major driver behind the higher cost of living around the world in the past two years.

Randeep Somel, fund manager at M&G Investment Management, told the BBC's Today program that: "The concern for the markets would be mainly inflation, which would actually add to inflation."

While the pace of inflation has slowed, in the UK it is still above the Bank of England's 2% target and some economists have predicted that an interest rate cut may not happen until the summer or later in the year.

"In the UK, inflation rates are still around 3.2% - still somewhat off target - and it's becoming a bit of a concern for policymakers," Mr Somel said.

"It is good to see that this has not escalated further and that we hope that the disruption in the markets is short-lived," writes BBC, KosovaPress broadcasts.

The price of gold often rises in times of uncertainty as it is seen as a safe investment.

The heightened tension in the Middle East has led to concerns about whether shipping through the Strait of Hormuz between Oman and Iran will be affected.

It is a crucial sea route, as about 20% of the world's total oil supply passes through it.

Members of the Opec oil-producing cartel - Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq - send most of the oil they export through the strait.

Iran is the world's seventh-largest oil producer, according to the US Energy Information Administration, and the third-largest OPEC member.