UK stocks fall after BoE holds rates, pound gains ground

(Reuters) -London's main stock indexes pulled back on Thursday as the pound strengthened following the Bank of England's decision to keep interest rates steady ahead of the government's budget, while investors also digested a flurry of corporate earnings.

The blue-chip FTSE 100 index closed 0.4% lower, retreating from a record high it hit a day earlier.

The midcap index fell 0.5%, reflecting broader risk-off sentiment.

While the Bank of England kept borrowing costs unchanged, as widely anticipated, the narrow margin in the vote and signals that Governor Andrew Bailey might soon join those advocating for monetary easing have increased expectations for a rate cut in December after the budget announcement later this month.

"The Bank will be in a stronger position after the dust settles from the budget, armed with additional jobs and inflation data, to judge whether further easing is warranted in December," said George Brown, senior economist at Schroders.

Still, sterling found its footing after hitting multi-month lows in the previous session, climbing 0.45% following the BoE decision.

Across London markets, industrial stocks emerged as the main drag, with the sector declining 1.8%. The aerospace and defence sector also struggled, shedding 2.1%.

Oil and gas companies' shares lost ground as oil prices fell, with BP ticking 0.5% lower and Shell down 0.4%.

Heavyweight AstraZeneca's 3% gains provided support for the pharma sector as the drugmaker reported better-than-expected third-quarter profit, boosted by strong sales in cancer and heart-related drugs.

Smith & Nephew PLC plunged 10.8% after it missed market expectations for quarterly revenue due to weakness in its U.S. knee implants business.

The banking index gained 0.8%, with Standard Chartered and Barclays PLC up 1.5% and 1%, respectively.

The Financial Times reported that finance minister Rachel Reeves was set to spare them from a punitive budget tax raid.

Among other notable movers, Britain’s second-largest supermarket group Sainsbury gained 5.5% after raising its full-year profit outlook.

Diageo fell 6.5% after trimming its 2026 sales and profit forecast.

(Reporting by Utkarsh Tushar Hathi and Ragini Mathur; Editing by Saumyadeb Chakrabarty and Gareth Jones)