Banks count the cost as prospects of a further US rate rise recedes

BLUE-CHIP banks suffered most on a sliding market yesterday as a surprise split among US Federal Reserve policymakers wounded hopes that an interest rate hike stateside could soon bolster earnings.

Profitability at Londonlisted banks with large international exposures benefits from higher interest rates in the US and, in minutes from its latest meeting, Fed policymakers’ indecision over whether US inflation is strong enough to withstand a hike brought the bullish swagger exuding from European markets this week to an abrupt end.

“A key tenet of the investment idea behind banks this year has been the expectation of gradually higher rates in the US, as the Fed looks to unwind years of loose monetary policy,” explained Chris Beauchamp, IG’S chief market analyst.

“With inflation so stubbornly unresponsive, this idea is beginning to come unstuck.”

The heavy weighting of

HSBC pulled down the FTSE 100 most as it slipped 10p to 738p, while emerging markets-focused Standard

Chartered’s large exposure to policy movements abroad saw it slump 21p to 755p, a 2.7pc fall. The Royal Bank

of Scotland retreated 5.8p to 258.1p, while Barclays dipped 3.5p to 197.3p.

The double whammy of receding rate-hike hopes and Donald Trump disbanding two business committees in the latest sentiment-damaging act by the US president weakened the dollar to pull down the UK’S exporters.

Another batch of heavyweight stocks going ex-dividend, including British American Tobacco, Imperial Brands and Reckitt Benckiser, also weighed heavily on the FTSE 100, which closed 45.16 points lower at 7,387.87.

Elsewhere, chemicals specialist Johnson Matthey rallied towards the top of the blue-chip leaderboard as broker Bernstein played down fears over the European diesel market. The market overestimated the negative impact of the EU diesel phase-out and Elzbieta Bienkowska, the EU industry commissioner, provided a first ray of hope by signalling a moderate regulatory approach to the transition, argued analyst Jeremy Redenius, to push stock 64p higher to £28.18. Retailing giant

Kingfisher fell 12.6p to 294.8p to the bottom of the FTSE 100, its shares buckling after its B&Q business suffered a sales slump, while insurer

Admiral slid for a second consecutive day on its latest earnings, dropping 47p to £20. Meanwhile, on the FTSE 250, Hikma Pharmaceuticals partially recovered from a 17pc intraday nosedive to close 139p lower at £11.90 after disappointing investors with lower sales guidance, while Qinetiq jumped 4p to 240.2p following a Barclays broker upgrade.