London's blue-chip FTSE 100 index closed Monday's session with a modest gain, finishing 0.3% higher at 10,473.69. The advance was primarily driven by strength in the banking sector and defence contractors, providing a counterbalance to weakness in mining stocks. Trading activity was somewhat subdued with U.S. markets closed for a public holiday.
Banking Sector Boosted by Capital Return
NatWest Group provided the most significant individual lift to the benchmark index, its shares surging 4.8% to 607.80 pence. The rally followed the bank's announcement of a substantial share buyback programme worth up to £750 million. The bank stated that all shares repurchased will be cancelled, thereby reducing the total share count. UBS has been appointed to conduct the transactions independently, with the programme scheduled for completion by January 15, 2027. This move signals robust capital strength and a commitment to returning excess cash to shareholders.
Defence Stocks Rally on Spending Pledge
Defence-related companies also found strong support, rising amid renewed political focus on military expenditure. Prime Minister Keir Starmer called for the United Kingdom to accelerate its defence spending plans. According to a BBC report, the government is considering bringing forward a target to spend 3% of GDP on defence to the 2029-30 fiscal year, from a later date. The country's fiscal watchdog estimates achieving this goal would require an additional £17.3 billion in annual funding by that period. Shares of Babcock International climbed 3.5%, BAE Systems added 3.0%, and Melrose Industries, which owns aerospace engineer GKN, advanced 3.9%.
Mid-Cap Index Underperforms
In contrast to the large-cap advance, the domestically-focused FTSE 250 mid-cap index declined 0.2%. The index was weighed down by several significant individual fallers reflecting deal disappointment and corporate setbacks.
Pinewood Technologies saw its shares plummet by 33% after private equity firm Apax Partners formally withdrew from the takeover process. The company issued a statement noting that Apax's "no intention to bid" announcement triggered Rule 2.8 restrictions under the UK Takeover Code, which imposes a cooling-off period. Despite the setback, Pinewood's board reiterated confidence in the company's long-term strategy, with full-year results still scheduled for release on April 22.
In a separate development, shares of SkinBioTherapeutics collapsed by approximately 45%. The steep decline came after the life sciences company disclosed it must reverse around £770,000 of previously accrued royalty income and will need to restate its accounts for the 2025 fiscal year. This action follows an internal investigation that uncovered misrepresentations linked to its former chief executive. Looking ahead, the company warned that its earnings for fiscal 2026 are expected to fall significantly below current market expectations.
Market Context and Economic Focus
The market's close arrives ahead of a critical week for UK economic data, which will heavily influence expectations for the Bank of England's next policy moves. Financial markets are currently pricing in a potential 25-basis-point interest rate cut at the Monetary Policy Committee's meeting on March 19, which would lower the Bank Rate to 3.50%. A Reuters survey of economists aligns with this view, indicating a bet on a March cut.
Sanjay Raja, an economist at Deutsche Bank, commented, "We stick to our call for the next Bank Rate cut to come in March." James Rossiter of TD Securities projected that UK inflation could "sit around the 2.5% mark" by the end of the year, providing room for monetary easing.
The immediate data calendar is packed. UK labour market figures are due at 07:00 GMT on Tuesday, February 17. January inflation data follows at the same time on Wednesday, February 18. The week concludes with retail sales numbers on Friday, February 20, also released at 07:00 GMT.
Sector Performance and Sentiment
While banks recovered from last week's jitters related to artificial intelligence sector volatility, mining stocks lagged as prices for both base and precious metals softened. The day's price action, with blue chips edging higher while midcaps declined, highlighted the ongoing tension in UK equity markets between broad macroeconomic trends and sharp, stock-specific shocks.
Jim Reid of Deutsche Bank noted the persistent uncertainty, writing, "We still won't have enough evidence to identify the structural winners and losers with confidence." He pointed to the continuing debate over which companies will ultimately benefit or suffer from the proliferation of AI tools, a factor likely to keep investor sentiment volatile in the near term.
