By Sruthi Shankar

(Reuters) -Britain’s top share index logged its fourth consecutive week of gains on Friday, as global sentiment got a boost from signs of waning U.S. inflation even as domestic data showed Britain’s economy contracted in the second quarter.

The blue-chip FTSE 100 ended 0.5% higher at a two-month high. The index has outperformed its global peers this year, aided by weakness in sterling and its large exposure to energy and defensive companies.

Sterling slid against a firming dollar as data showed Britain’s economy contracted by 0.1% in the June quarter, compared with forecasts for a 0.3% drop.

However, the data still pointed to growing weakness among consumer-facing sectors of the economy, such as retail and restaurants, that are most exposed to a worsening cost-of-living crisis.

“The fall in UK GDP during the second quarter was largely down to noise,” James Smith, economist at ING, wrote in a note.

“But the risk of recession is rising quickly, with gas futures hitting new highs for next winter and our latest estimates suggesting the household energy price cap could come close to 5,000 pounds in the second quarter of next year. Much now depends on fiscal policy announcements in the autumn.”

Meanwhile, Britain officially declared a drought in parts of England as households faced new curbs on water usage during a prolonged period of hot and dry weather.

Drugmaker GSK rose 3.6% after shedding about 16% in the past two sessions on concerns about U.S. litigation focused on a heartburn drug that contained a probable carcinogen.

GSK said there was no evidence of a causal association between therapy with the heartburn drug and the development of cancer in patients. Haleon, GSK’s recently spun-off consumer health unit, edged 2.2% higher after shedding 13% in the past two days.

Flutter jumped 14.1% after the world’s largest online betting firm said it expected to finish the year ahead of 2021, excluding an expected final year of losses in its fast growing U.S. business.

The FTSE 250 midcap index also closed 0.5% higher to mark weekly gains.

At the bottom of the midcap index was 888 Holdings Plc, which fell 10.8% after the bookmaker reported a fall in its first-half interim profit, dented by tightened British online gambling safety measures and the cost-of-living crisis.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Subhranshu Sahu, Uttaresh.V and Alex Richardson)