By Sruthi Shankar and Shristi Achar A
(Reuters) - The UK's main stock indexes fell on Tuesday as investors remained cautious ahead of major central bank decisions due this week, while the IMF's warning about Britain's economic outlook soured sentiment further.
The blue-chip FTSE 100 index closed the session 0.2% lower, with economically sensitive banks and mining stocks being among the top drags.
Britain is the only Group of Seven nation to have suffered a cut to its 2023 economic growth outlook in International Monetary Fund (IMF) forecasts published earlier in the day, adding to pressure on Finance Minister Jeremy Hunt to come up with a growth plan.
The economy looks set to shrink by 0.6% this year, a sharp downgrade from IMF's previous forecast of 0.3% growth.
"Despite the gloomy IMF forecasts, I think the Bank of England is still likely to stick to its 50 bps (rate) increase given that inflation remains in double digits," said Victoria Scholar, head of investment at Interactive Investor.
"However looking ahead, the pace of tightening looks set to slow as the Bank of England tries to balance taming inflation without inadvertently bringing about a recession."
Money markets see an 82.4% chance of a 50-basis-point rate hike by the Bank of England on Thursday, in what would be its 10th consecutive move.
The midcap FTSE 250 index fell 0.4%.
Still, the FTSE 100 has gained 4.2% this month, logging its biggest percentage gains in January since 2013. The index earlier in the month even came close to its record high levels. The FTSE 250 has gained 5.1% so far this year.
"Equity markets have had a good bounce this year as people have been a little bit more optimistic about inflation being under control," said Shanti Kelemen, chief investment officer at M&G Wealth.
Pets At Home jumped 6.3%, its best day in over eight months, after the company raised its full-year profit forecast.
A.G. Barr gained 4.4% as maker of Irn-Bru, the orange fizzy drink, anticipates it will beat market expectations for full-year profit and revenue.
(This story has been corrected to change the last name to "Kelemen" from "Keleman" in the tenth paragraph)