LONDON (Reuters) - Heavy losses on Friday sent the FTSE 100 to its widest monthly loss since September 2015, sealing its first negative quarter in more than a year as a tumultuous first half drew to a close.
A drop among oil stocks, miners and by United Utilities (UU.L) kept the UK's top share index in negative territory on Friday after a choppy day.
The blue-chip FTSE 100 .FTSE index was down 0.5 percent at 7,312.72 points, underperforming a European market which was also lacklustre. Mid-caps, which are more domestically exposed, felt the brunt of investors turning against the UK economy and suffered their worst month since the Brexit vote.
The FTSE 100's heavy weighting towards the resources sectors has hindered its progress over the past month as the price of oil slid to a 7-month low.
Retailers Marks & Spencer (MKS.L) and Next (NXT.L) were also prominent fallers, down 2.1 and 3 percent after a survey showed British consumer confidence hit its lowest since last July, immediately after the country voted to leave the European Union.
Worries over central banks hinting that a tightening of monetary policy could be on the horizon have also been a key focus this week, hitting shares in defensive, dividend-paying stocks such as utilities and pharmaceutical firms, whose dividends become less attractive when bond yields rise.
"The market has decided that we are entering an environment where borrowing costs are going to start to rise," said Ken Odeluga, market analyst at City Index.
"That has a lot of implications for debt-dependent, capital-intensive industries, for industries which tend to run a weak or negative cash profile," Odeluga said, adding that, as many of the UK blue chips tend to be low-growth, high-yielding, value stocks, the recent rotation could be beneficial for the FTSE.
United Utilities (UU.L) was the biggest blue chip faller, down 3.5 percent following a downgrade to "underperform" from Credit Suisse.
"We think bond yields are equally likely to rise over the coming five-year period. This would exacerbate the valuation impact of the cut to returns," analysts at Credit Suisse said in a note, referring to the broader water utilities sector.
"Financing risk is borne by companies, and while this has led to windfall profits over the past two regulatory cycles, the dynamic could very well reverse."
British utilities had been under particular pressure this month in the run-up to the UK general election, with proposed policies around price caps weighing on the shares.
The last three months have also been lacklustre for the FTSE, which ended the second quarter with a narrow 0.1 percent loss following four quarters of robust gains as sterling's post-Brexit vote plunge boosted dollar-earning blue chips.
Major British stocks could no longer lean on the weak sterling this quarter, though, with the currency posting its best quarter in two years thanks to a weaker dollar and rising expectations of tighter monetary policy.
Mid-caps .FTMC suffered their worst month since the Brexit vote, hit by eroding investor confidence in stocks more exposed to a turbulent and uncertain domestic economy.
They were down 3.2 percent on the month, but held on to their fourth consecutive quarter of gains, with 1.9 percent.
Among mid-caps which ended the day steady, shares in Greene King (GNK.L) were among the biggest fallers.
They dropped more than 4 percent after JPMorgan downgraded its rating on the pub operator to "neutral", and several other brokers cut their price targets for the stock, following Greene King's full year update in the previous session.
Reporting by Kit Rees; Editing by Keith Weir and Ralph Boulton