The FTSE 100 traded in negative territory on Wednesday as Theresa May prepared to face Labour's vote of no-confidence in her government following the defeat for her Brexit deal.

The dip in the benchmark index of Britain's biggest traded companies reflected a strengthening in the value of the pound overnight, as traders bet on a softer Brexit following the parliamentary vote on the Withdrawal Agreement.

The FTSE closed 0.5% or 32 points lower at 6862 as sterling held steady just below $1.29 and at €1.13 - a two month high.

Traders said the values reflected the nature of the escalating political crisis - with the FTSE propped up only by a continuing recovery in the US and Europe.

"Outside the UK the country is a laughing stock and an embarrassment, which is encouraging investors and fund managers to view the UK as a bit of a basket case for now," said Clive Black, analyst at Shore Capital Markets.


European equity markets were higher following the steep falls of recent weeks and months linked to concerns for the world economy from the US/China trade war at a time of rising US interest rates.

The FTSE was dragged lower by multinational companies that make most of their earnings overseas as a rise in sterling trims their profits.

European banking stocks rose as investors bet that a no-deal Brexit was less likely after Mrs May's defeat.

One analyst told Sky News that sterling's recovery was down to a growing market expectation that the Brexit process would now be delayed to allow time for a way forward to be agreed.

Naeem Aslam, chief market analyst at Think Markets, said: "Sterling has taken a U-turn on the back of the vote because investors know that now Brexit isn't going to happen in March."

Bank of England governor Mark Carney also weighed in, saying the rebound in sterling was a sign markets believe Brexit could be delayed.

In a hearing with MPs on the Treasury Select Committee, he said: "There was a sharp rebound in sterling following the vote and public market commentary, consistent with our market intelligence, (suggests) that rebound would appear to reflect some expectation that the process of resolution would be extended and that the prospect of no-deal may have been diminished."

Mr Carney stressed he was not giving his opinion, but the "market's initial take".

He added: "The markets, like the country, is looking to Parliament for direction and one could expect continued volatility."

The pound has been a barometer of the Brexit process for financial markets - falling from levels just above $1.50 in June 2016 when the UK voted to leave the EU.

It has fallen as low as $1.15 since - though that was largely the result of a trading blip - with the prospect of a softer, or no Brexit, supporting the currency's recovery in more recent times.

It hit a seven-week high against the greenback on Monday but later lost ground as the scale of the defeat for Mrs May emerged.

The PM's Brexit deal had been given qualified support by major business groups, who argued firms needed clarity on the Brexit issue.