London stocks slip as US fiscal worries, UK budget deficit weigh on sentiment

(Reuters) -British equities ended lower on Thursday in broad-based declines as concerns over a deteriorating fiscal outlook in the U.S. and a higher-than-expected UK government budget deficit dampened investor sentiment on risk assets.

The blue-chip index fell 0.5%, while the domestically focused midcap index slipped 0.7%.

On Thursday, the Republican-controlled U.S. House of Representatives passed a sweeping tax and spending bill by a single vote - legislation that would enact much of President Donald Trump's policy agenda.

Investors have worried that if the bill becomes law, it will add about $3.8 trillion over the next decade to the U.S. federal government's current $36.2 trillion debt.

In Britain, data showed the government borrowed more than expected in April, indicating continued pressure on public finances.

Following this, British government bonds underperformed earlier in the day, underlining unease among investors about the country's stretched finances.

Longer-dated U.S. Treasury yields also stayed near their multi-month highs, reinforcing market worries about a worsening fiscal outlook in the world's biggest economy.

Energy subindex fell 1.5% as oil prices dropped by more than 1%. [O/R]

Heavyweight Shell and BP dragged the FTSE 100 down, both slipping 1.5%.

Budget airline easyJet slipped 2.6% after reporting half-year results.

British Land fell 5.4% and was among the top losers on the mid-cap index due to a tepid earnings forecast.

On the flip side, Johnson Matthey posted its highest gain in nearly a year, up 30.7%, after the chemicals firm agreed to sell its catalyst technologies business to Honeywell International.

QinetiQ gained 6.8% after the British government signed a 1.5-billion-pound ($2.01 billion), five-year contract extension with the defence company.

Separately, the S&P Global UK Composite Purchasing Managers' Index (PMI), a gauge of the private sector economy, rose to 49.4 from 48.5 in April, roughly as expected by economists polled by Reuters.

(Reporting by Sanchayaita Roy, Twesha Dikshit and Ragini Mathur; editing by Shreya Biswas and Mark Heinrich)