FTSE 100 close: Interest rate concerns linger as NatWest heads lower

London’s FTSE 100 struggled for gains today as investors took a cautious approach before the Bank of England’s expected 13th straight interest rate rise on Thursday.

The capital’s premier index shed 0.25 per cent to close at 7,569.30 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, slipped 0.57 per cent to 18,746.16 points.

A series of factors are buffeting the UK economy that are knocking sentiment towards London’s top firms.

Sticky inflation is raising the chances of the Bank continuing to raise borrowing costs to tame it, while the mortgage market has been jolted by higher peak rate expectations, pushing rates over six per cent.

“A tightening mortgage market where affordability and availability are increasingly dual concerns, and with consumer sentiment fragile against generally rising household costs, sentiment remains subdued,” Richard Hunter, head of markets at interactive investor, said.

New numbers out on Wednesday from the Office for National Statistics are poised to show inflation is still very high, dropping to 8.3 per cent in May from 8.7 per cent in April. Core inflation, which the Bank watches closely, is likely to remain elevated.

“UK specific factors including Brexit, an open economy and greater reliance on imported energy has been more negative on the inflation front than either Europe or the US,” analysts at Jefferies said.

Hunter added London investors took their lead in the morning from a poor trading day in Asia overnight. Wall Street also opened lower, amplifying negativity in the City.

A batch of consumer-focused stocks helped hoist the FTSE 100 just about into positive territory in the first couple hours of the day, before interest rate sensitive companies dragged the index into the red.

NatWest dropped nearly three per cent, while a string of other financial firms finished the day near the bed of the FTSE 100.

Mike Ashley’s Frasers Group closed flat after it announced it has accumulated a five per cent stake in online fast fashion firm Boohoo.

Pound sterling weakened sharply against the US dollar, down nearly 0.4 per cent, arresting an ascent that has pushed it to its highest level against the greenback in over a year.

Traders have been piling into the pound to capitalise on rates on UK debt topping those offered on US bonds. Yields and prices move inversely.

Yesterday, the yield on the 2-year gilt hit its highest level in 15 years, lifted by traders betting Bank Governor Andrew Bailey and co are on course to lift UK interest rates to at least 5.75 per cent. They fell around 15 basis points today ahead of key inflation data out tomorrow morning.

Oil benchmarks were depressed. WTI dropped more than two per cent while Brent Crude fell 1.4 per cent.