London markets continue to drop but banks jump ahead of BoE rate rise

London markets continued to slip today after Monday’s bruising session, but losses were tempered by the UK’s largest lenders jumping ahead of another expected rate hike from the Bank of England tomorrow.

The capital’s premier FTSE 100 index fell 0.25 per cent to 7,187.82 points, while the domestically-focused, mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, dropped 0.6 per cent to 19,045.03 points.

The City was caught up in a global sell-off at the beginning of the week driven by concerns that the worst bout of global inflation in recent history will tip some of the world’s biggest economies into recession.

Investors also ditched shares on bets that central banks will have to engineer a sharp economic slowdown in order to shake inflation out of the global economy.

The Bank of England is expected tomorrow to send borrowing costs at least 25 basis points higher to 1.25 per cent. However, some investors are baking in a 50 basis point rise.

Those predictions have strengthened sentiment toward Britain’s biggest banks, with the likes of HSBC and Lloyds surging 3.48 per cent and 1.27 per cent respectively.

Banks benefit from higher interest rates as it allows them to charge more for loans, widening their net interest margin, a key source of the income for the sector.

Retailers dragged the FTSE 100 down on fears over the coming spending cooldown. Middle-class favourite and online supermarket Ocado closed over 10 per lower.

B&Q owner Kingfisher was the second worst performer on the premier index, tumbling 4.4 per cent.

The pound weakened over one per cent against the dollar to buy less than $1.2.