London markets post mixed day as banks take a tumble

London markets posted mixed performance today as big industrial firms and banks dragged the FTSE 100 lower.

The capital’s premier index dropped 0.19 per cent to 7,558.49 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, climbed 1.28 per cent to close at 19,409.42 points.

London’s biggest high street banks led the FTSE 100 lower today, driven by investors reining in expectations for the scale of future interest rate hikes by the Bank of England.

Barclays, NatWest and Lloyds all finished 1.65 per cent lower.

Traders think the Bank will lift borrowing costs 50 basis points at its meeting later this month, taking them 3.5 per cent. Higher interest rates boost banks by allowing them to charge more for loans.

Some investors were booking profits on the sector’s shares “after the strong gains seen in the past two days,” Michael Hewson, chief market analyst at CMC Markets UK, said.

HSBC fell more than two per cent despite chief executive Noel Quinn telling the Financial Times he is committed to cutting costs at the UK’s biggest lender.

Oil giants BP and Shell also tumbled despite oil prices rising.

Hewson said “recent strength of the pound may be a factor here, acting as a drag on those big US dollar earners”.

The pound reached its highest level against the US dollar since early August today. A stronger pound acts as a drag on the FTSE 100 by making exporters’ – which make up a big chunk of the index – products relatively less competitive.