THE pound shrugged off the Bank of England's warnings of weaker economic growth on Thursday, making gains on the US dollar and the euro as talks with the EU resumed.
The UK's central bank said Brexit uncertainty is set to see growth slump to its lowest level for 10 years in 2019, as it held interest rates at 0.75%.
Governor Mark Carney also warned about the mounting risk of recession in the event of a no-deal Brexit.
Sterling initially lost ground following the news, but had recovered by the end of the day to gain 0.43% on the euro at 1.424.
The currency was 0.38% higher versus the US dollar at 1.297.
Fiona Cincotta, senior market analyst at City Index, said the pound was boosted by Mr Carney's "upbeat tone", as he indicated growth could be higher in the case of an orderly Brexit.
"Whilst the central bank governor offered some pound pleasing views, until Brexit 'fog' clears we are not going to have a clear idea on the future path of interest rates," she said.
"May's quarterly inflation report should give more clarity over the expected path for policy."
The stronger pound was partly to blame for pushing London's blue-chip index into the red.
The FTSE 100 fell 79.51 points to close at 7,093.58.
Tui and Ocado were at the bottom of London's blue-chip index, as investors processed negative news from the companies.
Ocado continued its steep decline, shedding another 94.6p to close at 873.8p, following the fire at its facility in Hampshire.
In the latest update on the incident, Ocado apologised to those affected after nearby homes were evacuated.
The online grocer said on Wednesday that the fallout of the fire was likely to hold back its sales growth.
Meanwhile shares in Tui tumbled after the holiday giant cut its earnings forecast as it nurses a hit from last year's "extraordinary hot weather" and the weak pound.
The group said late on Wednesday that it expects adjusted earnings for the year ended September 30 to come in flat at around 1.17 billion euros (£1 billion). Shares closed down 229.4p to 954.6p.
In contrast, fellow travel operator Thomas Cook was flying high after announcing a strategic review of its airline arm, which could involve selling the division.
Shares in Thomas Cook jumped 3.1p to 34.18p.
Housebuilder Bellway's shares dropped 93p to 2,797p, after saying uncertainty has "inevitably" taken its toll on consumer confidence.
But the company still expects to see half-year revenues rise by more than 12%.
On the oil markets, prices dropped after US crude supplies rose and the country's production held at record levels.
A barrel of Brent crude oil was trading at $60.82, marking a decline of 2.8%.
In Europe, the French Cac was down 1.84% and the German Dax declined by 2.67%.
The biggest risers on the FTSE 100 were Smith & Nephew up 83.5p to 1,545p, Compass Group up 62p to 1,758p, Hiscox up 26p to 1,495p and Diageo up 40p to 2,965p.
The biggest fallers on the FTSE 100 were Tui down 229.4p to 954.6p, Ocado down 94.6p to 873.8p, WPP down 73.2p to 800.4p, and Wood Group down 39.4p to 506.6p.
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