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London’s FTSE 100 dragged down by industrial giants as pound weakens against US dollar

The capital’s premier index dropped 0.45 per cent to close below the 7,000 mark, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, fell 1.31 per cent to 17,125.29 points

London’s FTSE 100 dipped today driven lower by investors ditching industrial giants on concerns over a slowdown in commodity demand amid a global economic slowdown.

The capital’s premier index dropped 0.45 per cent to close below the 7,000 mark, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, fell 1.31 per cent to 17,125.29 points.

Anxiety over the world’s largest economies cutting commodity consumption due to soaring inflation and higher interest rates weighed on big London-listed miners today.

Fresnillo and BP slid over 1.4 per cent.

Inflation has soared to historic highs in the US, UK and eurozone, prompting central banks to hike interest rates steeply.

Higher prices and tighter financial conditions are leading to a slowdown in economic activity, reducing demand for oil, copper and other raw materials.

London’s FTSE 100 is heavily weighted toward so-called “old economy” stocks such as commodity producers, meaning it is often dragged down when the sector under performs.

Oil prices fell around 0.25 per cent, knocking market sentiment toward industrial firms.

UK borrowing costs also fired higher on concerns over how the gilt market will react after the Bank of England’s £65bn time-limited bond buying scheme ends on Friday.

Yields on the 10-year and 30-year UK gilt both shot up more than 20 basis points. Prices and yields move inversely.

A weaker pound also failed to lift big exporters. Sterling shed 0.5 per cent against the US dollar to buy $1.1028.

Pound/US dollar exchange rate

A weaker pound failed to boost London's FTSE 100 this morning
Sterling has fallen sharply against the US dollar recently (Source: CNBC)

The currency has been on a downward spiral against the greenback since the start of the year. Its decline has been accelerated by the government pencilling in £43bn of unfunded tax cuts and stepping up borrowing.

The Bank today said it will increase the cap on its daily long-dated bond purchases to £10bn. The package is set to end on Friday, but analysts have warned the gilt market could undergo further volatility when it ends, opening the door for it to be extended.

Threadneedle Street also expanded the parameters of a lending facility for UK pension funds in a bid to stop some of them collapsing amid a bond market sell off.