Stock prices in London ended lower on Thursday after the Bank of England kept UK interest rates unchanged but a hawkish tone to the central bank's meeting minutes suggested the possibly of an impending hike.
The FTSE 100 index closed down 1.1%, or 84.31 points at 7,295.39. The FTSE 250 ended down 0.3%, or 66.03 points, at 19,523.94, and the AIM All-Share closed down 0.5%, or 4.60 points, at 1,000.24.
The BATS UK 100 ended down 1.2% at 12,402.96, the BATS 250 closed down 0.3% at 17,77.08, and the BATS Small Companies ended 1.3% lower at 12,126.99.
The BOE retained its record low interest rate on Thursday, as widely expected, but hinted at raising rates over the coming months to bring inflation back to the target.
The Monetary Policy Committee voted 7-2 to hold the key interest rate at a record low 0.25%. But all nine members voted to maintain the quantitative easing at GBP435 billion.
Ian McCafferty and Michael Saunders maintained their call for a quarter-point rate hike at the meeting. The new MPC member, Deputy Governor Dave Ramsden, preferred to keep the rate unchanged.
Economists had thought BOE Chief Economist Andrew Haldane might join the hawks after UK inflation shot up to 2.9% in August, which was the joint highest in over five years, but he didn't this time around.
According to the BOE minutes, some members said a withdrawal of part of the stimulus injected in August last year would help to moderate the inflation overshoot, while leaving monetary policy very supportive.
The BOE continues to expect inflation to overshoot the 2% target over the next three years. Although underlying pay growth has shown some signs of recovery, growth remains moderate, the bank said.
Since the August Inflation Report, data suggested slightly stronger picture than anticipated, the UK central bank noted. Further, spare capacity in the economy is being absorbed a little more rapidly than expected in August.
If the economy were to follow a path broadly consistent with August Inflation Report, all members said monetary policy could need to be tightened by a somewhat greater extent than current market expectations. However, all members agreed that any prospective increases in bank rate would be expected to be at a gradual pace and to a limited extent.
The pound jumped following the announcement, hitting its highest level in a year against the dollar at USD1.3395, recovering off a dip on Wednesday caused by a report of weak UK wage growth. Sterling remained essentially at that high at the London equities close, quoted at USD1.3394 compared to USD1.3208 late Wednesday.
"The GBP/USD [exchange rate] hit a fresh one-year high today after the latest Bank of England meeting was more hawkish than anticipated. The UK central bank warned that it may reduce the stimulus package in the coming months. The BoE also anticipates inflation to top 3% next month. The pound has been broadly gaining ground versus the greenback since January, and the momentum is with the buyers," said CMC analyst David Madden.
In Paris the CAC 40 ended up 0.2%, while the DAX 30 in Frankfurt ended down 0.1%.
The euro stood at USD1.1882 at the European equities close, against USD1.1892 the prior day.
Stocks in New York were narrowly mixed at the London equities close. The Dow Industrials was up 0.1%, the S&P 500 index was down 0.1%, and the Nasdaq Composite was down 0.2%.
Reflecting a sharp jump in energy prices, the US Labor Department released a report on Thursday showing US consumer prices increased by slightly more than anticipated in the month of August.
The Labor Department said its consumer price index climbed by 0.4% in August after inching up by 0.1% in July. Economists had expected consumer prices to rise by 0.3%.
The report also said the annual rate of growth in consumer prices accelerated to 1.9% in August from 1.7% in July, although the annual growth in core consumer prices was unchanged at 1.7%.
"Interestingly, the strength of cable's gains meant that the US inflation data passed by without making much of an impact. Despite the figure coming in better than expected, this was deemed by investors to be an insufficient increase to make much difference to the US Federal Reserve, which convenes next Wednesday," said Spreadex analyst Connor Campbell.
On the London Stock Exchange, fashion and homewares retailer Next ended the session as the best large-cap performer, closing up 10% as investors welcomed upgrades to its sales and profit forecasts for the year ahead. Peer Marks & Spencerfollowing along, closing up 3.1%.
Next said the first half of its financial year was "difficult" but its performance was "encouraging on a number of fronts", as it reported a fall in profit but upgraded its sales and profit guidance for its full year.
Next registered a 9.5% fall in pretax profit in the 26 weeks ended July 29 to GBP309.4 million from GBP342.1 million a year earlier, as revenue slipped to GBP1.89 billion from GBP1.94 billion.
Despite the overall fall in profit and revenue, Next said the last three months have provided some encouragement that its ranges are improving, although it did note that "weather has been in our favour and the comparative numbers last year were very poor".
Next marginally upgraded its full-year full price sales expectations to be between a 2.0% fall and 1.5% growth, with second-half full price sales to be between a 2.8% decline and 3.8% growth.
At the start of the financial year, Next provided full-year full price sales guidance of between a 3.5% fall and 2.5% growth, before narrowing the range to between a 3.5% decline and 0.5% rise in May, and then last month narrowing it further to a range of between a fall of 3.0% and growth of 0.5%.
The retailer also upped its full-year expectation for pretax profit to a range of between GBP687 million to GBP747 million on Thursday.
At the bottom of the large cap index was Wm Morrison Supermarkets, closing down 5.3%.
The supermarket chain beat expectations as it reported growth in profit and revenue in the first half of its financial year, after previously warning on uncertainties as a result of the devalued pound. Morrisons said pretax profit in the 26 weeks ended July 30 grew to GBP200 million from GBP143 million the year before, and revenue rose to GBP8.42 billion from GBP8.0 billion.
Driving this growth, Morrisons said it has improved the quality and packaging of its core own-label range, helping own-label frozen vegetable sales to rise by 12% year-on-year in the first half and own-label muesli and granola sales to increase by over 20%.
The Share Centre said the share price decline was most likely due to an element of profit taking going on after an "impressive" share price recovery. The stock has gained 20% over the past 12 months. .
In the FTSE 250, GVC Holdings was the best performer closing up 4.5%.
The sports betting and gaming company reported higher revenue in the first half of 2017 with company performance exceeding expectations and the pretax loss also narrowing substantially.
Revenue for the six months to June 30 rose 24% to EUR472.8 million from EUR382.1 million. Pretax loss narrowed to EUR6.6 million from EUR86.1 million. Adjusted pretax profit doubled to EUR101.9 million from EUR51.3 million. The adjusted figures exceptional items such as amortisation of acquisitions, impairments, changes in fair value of derivative financial instruments.
GVC paid a special dividend in February of EUR14.9 cents per share, with a further interim dividend of EUR16.5 cents per share coming in October. It said the company aims to return no less than 50% of free cash flow.
Conversely, Spire Healthcare was the worst performer in the midcap index, closing down 18%. Shares hit a low of 228.48p shortly after the London market open, their lowest level since August 2014. Some GBP222.0 million was wiped off its market value in the wake of the warning.
The private hospital group warned on weakening revenue trends, leading it to lower its guidance for the full year.
The diminished outlook came as the company's interim profit was dented by significant one-off costs related to the Ian Paterson litigation. Paterson, a former breast surgeon, was jailed in May for 15 years after being convicted on 17 counts of wounding with intent and three of unlawful wounding in relation to unnecessary cancer operations. Paterson had worked at Spire's Little Aston and Parkway hospitals in Birmingham between 1997 and 2011.
This led the company to report a pretax profit of GBP12.1 million for the half year to the end of June, down from GBP46.0 million the prior year, with one-off costs amounting to GBP32.1 million in the half offsetting a rise in revenue to GBP481.0 million from GBP469.5 million.
Brent oil was higher, quoted at USD55.84 a barrel at the London equities close from USD54.43 at the same time the prior day.
Gold was quoted at USD1,325.50 an ounce against USD1,322.54 at the equities close Wednesday.
The economic calendar on Friday has trade balance data from the eurozone at 1100 BST and retail sales figures from the US at 1330 BST.
In the UK corporate calendar Friday are full-year results by FTSE 250 pub chain JD Wetherspoon and a trading statement from Anglo-South African financial services group Investec.