Britain's top share index finished higher on Wednesday, with energy stocks tracking a sharp rally in crude oil prices and banks gaining momentum after US bank Morgan Stanley reported better-than-expected profits. The UK oil and gas index rose 0.9 percent, the top sectoral gainer, as oil prices jumped more than 2 percent after the US government reported a surprising drop in domestic crude stockpiles. Shares in BP, Tullow Oil and Royal Dutch Shell rose 1.2 to 2.3 percent.
Financial stocks were also in demand after Morgan Stanley's results were boosted by a surge in bond trading. The UK banking index was up nearly 1 percent, helped by a 0.9 to 1.6 percent rise in shares of Barclays, Lloyds Banking Group and Royal Bank of Scotland. "The FTSE 100 closed above the 7,000 mark and may well set new records in the days ahead on the back of positive momentum and some stronger earnings reports," Securequity senior trader Jawaid Afsar said.
"Earnings from Morgan Stanley helped the banking sector, while a spike in crude oil prices supported heavyweight oil majors like BP and Shell. The positive correlation between commodity prices and energy and mining shares are here to stay." The FTSE 100 ended 0.3 percent higher at 7,021.92 points, not far from its record high of 7,129.83 in the previous week. The FTSE mid-cap 250 index rose 0.3 percent.
Among major gainers, Burberry rebounded from recent falls to end 4.2 percent higher. It fell 7.2 percent on Tuesday after poorly-received earnings, its biggest one-day drop for a year, but brokers said the move was more than justified. Both Berenberg and Barclays raised their target price on the stock. On the downside, Travis Perkins fell 4.4 percent after Britain's biggest supplier of building materials warned on full-year profit, blaming a poor performance in its plumbing and heating division.
The stock is down about 27 percent since Britain voted to leave the European Union in June, making it the fourth worst UK bluechip performer in the four months since the referendum. Some analysts said its gloomy update will confirm worries that the British economy may be set for a slowdown. "People are taking fright as to whether there might be a broader readthrough to the UK economy," said Russ Mould, investment director at AJ Bell.
"The disappointing statement today will bring the risk of a UK economic slowdown back on the horizon, at a time when the market is obviously worried about the inflation genie coming out of the bottle as well." Fears of higher inflation have started to hit British consumer sentiment for the first time since June's vote to leave the European Union sent the value of sterling tumbling, a survey of households showed on Wednesday. Mid-cap Laird sank 49 percent after the supplier to smartphone makers issued a profit warning.