April 1 (Reuters) - London's main indexes closed higher on Wednesday after U.S. President Donald Trump signalled that the Iran war could end soon, prompting investors to scale back expectations for further interest rate hikes by the Bank of England.

The blue-chip FTSE 100 closed up 1.8%, while the midcap FTSE 250 climbed 2.2%. On Tuesday, both the indexes marked their biggest monthly drop since 2020 on fears that the war-led increase in oil prices will stoke inflation.

* The United States will end its war on Iran fairly soon andcould return for "spot hits" if needed, President Donald Trumptold Reuters on Wednesday, hours before he was scheduled to makea primetime address to the nation. * Interest rate futures were fully pricing in one 25basis-point increase in the BoE's bank rate by the end of 2026,and the possibility of a second compared, with two or threehikes previously. * Bank of England Governor Andrew Bailey said that marketswere still getting ahead of themselves by pricing in interestrate hikes by the central bank, which wanted to avoid adding tothe damage Britain's economy would face from the Iran war. * Most FTSE 350 sub-sectors traded in the green exceptenergy, which fell from record highs, down 4.2% after oil slidamid Middle East volatility. [O/R] * Aerospace and defence also added to gains, up 5.7%,providing the biggest boost to the benchmark index.  * Heavyweight banks also rose 5.2%, with NatWest Group, TBCBank Group and Lloyds Banking Group up between 5.4% and 5.8%. * Prime Minister Keir Starmer said that the globalinstability caused by the Iran war meant Britain should pivot tofocusing on closer economic and defence ties with Europe. * Britain's food prices will be rising by almost 10% by theend of 2026 due to the Iran war, the country's food and drinkmanufacturers' lobby warned, around three times faster than itsprevious forecast. * British factory cost pressures soared in March, anddelivery delays - due to ships avoiding the Strait of Hormuz -were the longest since mid-2022, according to an S&P Globalsurvey. * Berkeley fell 9.6% after the home builder forecast thatprofit growth would slow through 2030. The firm said it wouldhalt land purchases as the war and the risk of higher interestrates dampened hopes of a housing market recovery.

(Reporting by Tharuniyaa Lakshmi in Bengaluru; Editing by Harikrishnan Nair and Alex Richardson)