MILAN (Reuters) - Britain's top share index fell on Thursday as sterling bounced from 7-month lows following a Bank of England policy vote that bolstered expectations for a rate hike in August.
As widely expected the BoE kept rates unchanged but its chief economist unexpectedly joined the minority of policymakers calling for a hike.
Its Monetary Policy Committee (MPC) voted 6-3 this month to keep rates at 0.5 percent, in contrast to economists' expectations in a Reuters poll for a continued 7-2 split.
The surprise pushed sterling higher after an earlier drop. That in turn sent the FTSE 100 (FTSE) index down 0.7 percent by 1151 GMT, the export-oriented index having gained slightly at the open.
"Sterling jumped after an unexpectedly hawkish vote from the Bank of England points to rates likely rising this summer rather than at the year end," said Markets.com analyst Neil Wilson.
"Is August too soon to raise rates? Maybe, but the 6-3 vote on the MPC suggests the central bank is a bit closer to a hike than markets had expected," he said.
Financials were the biggest weight on the FTSE, but domestically focused banks Royal Bank of Scotland (L:RBS) and Lloyds (L:LLOY), which would benefit from a rate hike, outperformed with gains of 0.4 and 0.1 percent respectively.
Energy stocks were a big drag as expectations of an OPEC deal to raise output sent oil prices tumbling. [O/R]
Royal Dutch Shell (L:RDSa) fell 1 percent and BP (L:BP) was down 0.8 percent.
Heavyweight consumer stocks British American Tobacco (L:BATS) and Unilever (L:ULVR), which have benefited from the recent strength in the dollar, reduced their gains after BoE's statement. They were trading up 0.5 percent and down 0.1 percent respectively, while drugmaker Shire (L:SHP) continued to rise, up more than 2 percent.
Land Securities (L:LAND) and United Utilities (L:UU) fell as their shares traded without the right to the latest dividend payment.
Sky (L:SKYB) rose for a second day, up 1.1 percent at a two month high, after Disney (N:DIS) raised its offer for the bulk of Twenty-First Century Fox's (O:FOXA) entertainment assets, including the 39 percent stake in the UK-based pay-TV company.
The move has raised speculation Fox will in turn raise its bid for Sky, to top a bid from Comcast (O:CMCSA), although Liberum analyst Ian Whittaker said the room for further upside may be limited.
"We do not think it will be bid more than 10 percent above Comcast's bid, implying 1375p, which is where the shares are now," he said.