Stronger pound weighs on FTSE 100 after BoE lays plans for eventual tightening

By Shashank Nayar

(Reuters) -A strengthening pound weighed on Britain's export-heavy FTSE 100 on Thursday, as the Bank of England sent a clear message of how it plans to rein in its stimulus, when the time comes.

Rolls-Royce, however, outperformed, jumping 5.9% to a more-than-one-month high after the engine maker said it was on track to meet its forecasts for this year as cost cuts and asset sales help it weather a slow recovery in long-haul travel.

The FTSE 100 ended the day down 0.1%. Mining and consumer staples stocks logged the biggest declines as the Bank of England said it could see a modest reduction ahead in its massive stimulus, sending the pound higher against the dollar, although the UK currency later gave up some gains.

The FTSE 100 has gained about 10% this year on support from dovish central bank policies, but gains have slowed as investors fret about the longevity of such policies given rising inflation.

The Bank of England on Thursday kept its benchmark interest rate unchanged but said that inflation was now on course to rise even further above its 2% target, although it reiterated that higher prices would be temporary.

"Central banks are sticking to their view that the current price rises are 'transitory' ... but not everyone is so sanguine as some market strategists look to the classic cycle of higher commodity prices, higher factory gate prices, higher consumer prices and higher wages as a harbinger of inflation," AJ Bell investment director Russ Mould said.

The mid-cap FTSE 250 rose 0.7%, boosted by a 26.2% jump in shares of Cairn Energy after the Indian government proposed refunding companies involved in disputes over past tax payments, aiming to settle long-running litigation.

Blue chip Lloyd's Banking Group fell 3% after Goldman Sachs downgraded its stock to "sell".

Among other stocks, WPP, the world's biggest advertising company, rose 2.7% after saying its underlying net sales jumped 19.3% in the second quarter.

(Reporting by Shashank Nayar and Sagarika Jaisinghani in Bengaluru; Editing by Amy Caren Daniel and Susan Fenton)