London's FTSE 100 drops as financial sector weighs

By Purvi Agarwal and Shubham Batra

(Reuters) -London stocks slipped around 1% on Thursday, hurt by losses in the financial sector as the Bank of England cut interest rates from a 16-year high but suggested a cautious approach towards further reductions.

The blue-chip FTSE 100 index ended down 1.0%, its worst day in over three months. The mid-cap FTSE 250 slid 1.1%.

Banks had their biggest one-day drop since February 2022, falling 6.1%, after French peer Societe Generale cut its guidance for its retail net interest income.

Also weighing on markets, industrial metal miners were down 1.9% after copper prices retreated on worse than expected factory data in top metals consumer China and rising inventories that highlighted excess supply. [MET/L]

The BoE trimmed interest rates by a quarter point to 5% after a narrow vote in favour from policymakers, making it the first cut from the central bank since 2020.

However, BoE Governor Andrew Bailey said it would move cautiously going forward, as policymakers were divided over whether inflation pressures had eased sufficiently.

"The BoE have probably started (a cycle) that is going to be several rate cuts, but I wouldn't expect them to necessarily be back to back," said Hetal Mehta, head of economic research at St. James's Place.

The pound fell to its lowest in a month, and was last down 0.5% against the U.S. dollar.

The rate-sensitive real estate and real estate investment trust sectors were both up nearly 0.5%.

Aerospace and defence shares rose 1.3%, lifted by Rolls-Royce, whose shares hit a record high after the aerospace engineer raised its guidance for operating profit and free cash flow following a strong first half.

Shell lost 0.5%. The energy giant reported a profit of $6.3 billion that beat analysts' forecasts but was down 19% quarter-on-quarter.

(Reporting by Purvi Agarwal in Bengaluru; Editing by Vijay Kishore and Mark Potter)