MILAN/LONDON: Britain's top share index rose on Thursday after the Bank of England signaled a "very gradual" monetary policy tightening, hitting the pound and lifting shares in internationally exposed companies.
The BoE raised interest rates for the first time in more than 10 years and said it expected only "very gradual" further increases over the next three years.
Prospects of tightening however weighed on shares in domestically focused banks like Lloyds and Royal Bank of Scotland, compounded by uncertainty over Brexit talks and the health of the country's economy.
The FTSE rose as much as 0.9 percent following the central bank decision before paring gains.
By 1329 GMT the index was up 0.4 percent at 7.517.6 points, as the pound fell more than 1 percent, on track for its biggest one-day fall against the dollar in nearly five months.
Among FTSE-listed companies with big international exposure, British American Tobacco rose 0.8 percent and Shire climbed 1.5 percent.
The mid cap index, which is less exposed internationally, was up 0.2 percent.
"This continuation of the low interest rate environment is positive for equities," said Colin Morton, portfolio manager at the Franklin UK Equity Income Fund.
"Beyond interest rates, political uncertainties remain the major concern for investors in the UK to contend with. The lack of clarity surrounding Brexit and the UK government's instability are making it hard for companies to make investment decisions," he added.
In the banking sector, Lloyds and Royal Bank of Scotland fell 2 and 1.4 percent, respectively, while HSBC and Barclays were underpinned by the fall in the pound.
"Lloyds and RBS have greater net interest income sensitivity to rising rates. Expectations for a rate rise have gone down now because the tone of (Carney's press) conference is quite negative on future hikes. They were priced for more rate rises sooner," said Edward Firth, banks analyst at KBW.
EARNINGS ROLL IN
Elsewhere earnings were the key focus.
BT was the biggest FTSE faller, down 3.8 percent after the phone group posted a 4 percent drop in quarterly adjusted earnings, dragged down by ongoing problems at its Global Services unit, higher pension costs and sports rights.
Randgold fell 2.7 after the precious metals miner reported falls in third quarter production and profit but said output for the year remained on track to meet or exceed expectations.
Morrison Supermarkets fell 0.7 percent after Britain's fourth largest supermarket group reported another rise in quarterly sales, its eighth straight quarter of underlying growth though its rate of growth slowed a little.
"An in-line update from Morrison will do little to change the current debate on the shares," said Jefferies in a note.
Elsewhere in the sector, Tesco added 0.5 percent and Sainsbury's added 0.3 percent, while online supermarket Ocado fell 1.5 percent, as results from Morrison showed a slowing online contribution to sales.
Royal Dutch Shell added 1.3 to its highest level since September 2014.
The oil major reported a near 50 percent rise in quarterly profits, driven by strong refining, while solid cash generation underscored that the oil and gas company has adapted well to a world of low oil prices.
On the mid cap index, Playtech fell 21.7 percent. The gambling technology company warned on annual profit on Thursday saying it will be around 5 percent below the bottom end of market expectations due to a slowdown in parts of Asia and problems with a bingo contract.
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