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FTSE 100 close: Banks regain ground amid interest rate concerns as Vodafone slumps

"Market sentiment is being buoyed by better-than-expected retail sales," Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.
"Market sentiment is being buoyed by better-than-expected retail sales," Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

London’s FTSE 100 was dragged into the red today, driven by Britain’s largest banks struggling amid concerns about how much higher UK interest rates will go and Vodafone tumbling.

The capital’s premier index fell 0.11 per cent to 7,453.59 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, slipped 0.49 per cent to 17,974.67 points.

Fears have been mounting of late about the Bank of England continuing to raise interest rates aggressively to stomp on scorching inflation, which remained stuck at just below nine per cent in May.

The central bank delivered its 13th straight rate rise last Thursday, lifting borrowing costs 50 basis points to five per cent, their highest level since 2008.

Markets think Bank Governor Andrew Bailey and co will have to go further and hoist rates to a peak of more than six per cent.

That has amplified traders’ concerns about whether borrowers will be able to repay debts with significantly higher rates.

Barclays, NatWest, Lloyds Bank and Asia-focused Standard Chartered anchored the FTSE 100, all dropping at least more than one per cent during opening trading.

They retraced ground in the afternoon session, though Barclays and Lloyds still closed lower.

The prospect of further rate rises are also reigniting recession concerns in Britain, Europe and the US, weighing on stocks.

“European and US stock markets have seen a significant shift in sentiment over the past few days when it comes to the global economy. Rising bond yields, driven by more hawkish central banks, which has prompted investors to reassess the outlook when it comes to valuations and growth,” Michael Hewson, chief market analyst at CMC Markets UK, said.

Those jitters about the UK’s economic sluggish performance have pushed the FTSE 100 far below its 2023 peak of more than 8,000 points hit back in February.

Telecoms giant Vodafone was the worst performer on the premier index, shedding 3.62 per cent after it hit back at claims its proposed tie up with rival Three would pose national security risks.

But, bets on more monetary policy tightening has put upward pressure on pound sterling, making it one of the best performing currencies this year.

So far this year, it has strengthened more than five per cent against the US dollar.

Oil prices climbed around 0.6 per cent today.