FTSE: 5,509.02 (–8.42) Mid-250: 10,275.56 (+15.45) Small Cap: 2,797.21 (–5.90)UK STOCKS fell yesterday, erasing an earlier rally, as the Bank of England warned that the outlook for Britain's economy has worsened and a report showed that unemployment increased the most since 2009.

Energy firms paced advancing shares as crude oil rallied above $100 a barrel in New York.

The FTSE 100 Index fell 0.2 per cent, in London.

“The FTSE 100 endured another choppy and roller coaster session after the Bank of England sharply revised growth forecasts,” said Joshua Raymond, chief market strategist at City Index. “Banks and insurance firms, the key areas of risk associated with liabilities to sovereign debt, are the two sectors that continue to see weakness.”

The FTSE 100 tumbled as much as 1.2 per cent after B of E governor Mervyn King said Britain faces a “markedly weaker” outlook for economic growth and persistent danger from the euro area’s sovereign-debt crisis.

“The prospects for the UK have worsened,” the central bank said in its quarterly inflation report.

Based on its £275 billion bond-buying program remaining unchanged, inflation may fall below the central bank’s 2 per cent target in two years.

A release from the Office for National Statistics showed UK unemployment rose in the third quarter by 129,000 to 2.62 million, the biggest increase since 2009.

Standard Chartered lost 1.9 per cent to 1,330p, HSBC slid 1.3 per cent to 494.85p and Lloyds Banking fell 1.3 per cent to 26.94p.

Prudential led insurers lower, falling 2.2 per cent to 615.5p, Aviva slid 1.3 per cent to 308p and Admiral fell 3.6 per cent to 800.5p.

ICAP slid 4.7 per cent to 349.9p after the biggest broker of transactions between banks reported a 3 per cent climb in first-half profit to £101 millions.

Cairn advanced 2.4 per cent to 295p, while BP rose 1.6 per cent to 464.25p and Tullow Oil added 1.2 per cent to 1,378p.

Intertek climbed 3.5 per cent to 1,952p, for the biggest rally on the FTSE 100. The world’s largest consumer-goods testing company reported year to date organic revenue growth of 8 per cent.

Meggitt gained 2.4 per cent to 391.9p and Tate Lyle rose 0.8 per cent to 689.5p as both companies were added to the MSCI United Kingdom Index. – (Bloomberg)