FTSE 100 slumps to lowest level since 2016 as bank stocks fall

Shares in Royal Bank of Scotland, Barclays, HSBC and Standard Chartered all fell by more than 1 per cent

Over the longer term, the direction of the FTSE is likely to be dictated by the performance of the pound (Reuters)

The FTSE 100 fell to its lowest level since 2016 on Thursday, burdened by fears of a brewing trade war and the US Federal Reserve signalling that it might not raise interest rates as fast as investors had hoped.

The index was largely weighed down by a slump in bank stocks. Shares in the Royal Bank of Scotland, Barclays, HSBC and Standard Chartered all fell by more than 1 per cent. Banks tend to be beneficiaries of higher interest rates.

On Wednesday evening the US Federal Reserve increased rates as expected, but the central bank did not revise its forecast for more hikes over the course of the next year, as some analysts and investors had anticipated. It signalled that it still expects to raise rates at least twice in 2018.

Thursday’s fall in the FTSE took it to below 7,000 for the first time since December 2016. At its lowest, it was trading around 6,969 points. Shares in tech company Micro Focus also contributed to the index’s decline. They were down by almost 7 per cent around midday, deepening losses from earlier in the week after the company warned that revenues would fall more than expected this year and following the resignation of the firm’s chief executive.

Over the longer term, the direction of the FTSE is likely to be dictated by the performance of the pound. The majority of revenues generated by constituents of the blue-chip index come from outside of the UK, meaning that a weaker pound tends to benefit those firms.

The FTSE hit a series of record highs in the aftermath of the UK’s vote to leave the EU as the pound slid.