London markets mixed as banks soar on looming rate hikes

London markets were a mixed bag today despite banks surging on the prospect of the global economy lurching into a period of higher interest rates.

The capital’s premier FTSE 100 index closed 1.13 per cent higher at 7,554.31 points, while the domestically-focused FTSE 250, which is more aligned to the health of the UK economy, dipped 0.08 per cent to 21,854.57 points.

Britain’s biggest high street lenders were the best performers in the City today after the US Federal Reserve said on Wednesday it is likely to hike interest rates at its next meeting in March.

The Fed’s hawkish tilt strengthened expectations among investors that the Bank of England will lift interest rates at its meeting next Thursday.

Standard Chartered, which generates most of its income in Asia, was the best performer on the FTSE 100, climbing 4.24 per cent.

HSBC finished near the summit of the top risers table, while NatWest and Barclays both closed higher.

Banks benefit from a higher interest rate environment as it extends their net interest margin, a key source of income. It also allows them to charge higher rates on loans.

Yields have also moved higher as investors scramble to fixed income assets in preparation for a rate lift off.

Meanwhile, on the FTSE 250, cult boot maker Dr. Martens was by far the biggest loser, tumbling over nine per cent after it told markets in a trading update sales have slid. 

The pound lost ground on the greenback, sliding 0.62 per cent to buy $1.3376.