LONDON (Reuters) - British mid-caps suffered their worst one-day drop in nearly a year on Thursday as a sharp slowdown in the country's retail sales last month offered the latest sign of darkening clouds over companies exposed to the domestic economy.
Struggling retailers, weak commodities stocks and ex-dividends also sent the blue-chip FTSE 100 index to its lowest level in nearly a month, down 0.74 percent. The mid-cap index fell 2.11 percent.
"If one of the indices is going to find things tougher, it's likely to be the (FTSE) 250 rather than the 100," said Mike van Dulken, head of research at Accendo Markets.
The slide in UK stocks worsened after the Bank of England said that its Monetary Policy Committee had come the closest to voting for an interest rate rise since 2007, with three of its policymakers backing an increase.
The session was especially tricky for British retailers, with furniture seller DFS plummeting by more than 20 percent after a profit warning, blaming a weaker trading environment. Its shares suffered their worst day since listing.
Shares in mid-cap peer Howden Joinery nursed a 5.1 percent loss, while smaller ScS tumbled 8.1 percent. The FTSE 350 general retailers index was down 3.9 percent.
"DFS believes that (like-for-like) sales could recover. However, we take a more cautious view given rising inflation and Brexit uncertainty," Jefferies analysts said in a note, downgrading DFS to "hold".
A sharp fall in retail sales in May showed that British retailers are facing a tough time as a jump in inflation and low wage growth puts pressure on consumers, with a hung parliament after the UK general election adding to political uncertainty.
Weakness in retail was also evidenced in the United States in the previous session, when figures showed that U.S. consumer prices fell unexpectedly in May.
Aside from falls in Persimmon and other stocks trading ex-dividend, shares in clothes retailer Next slid by 6.1 percent after Credit Suisse cut its rating to "underperform", pointing to weak pricing across Europe for the wider sector.
"With earnings, margins and cash conversion continuing to fall, we regard Next as a value trap," Credit Suisse analysts said in a note.
Falls in mining companies also weighed, as the price of copper fell, set back by strength in the dollar after the U.S. Federal Reserve raised interest rates. [MET/L]
The sector came further under pressure after South Africa raised the minimum threshold for black ownership of mining companies. Anglo American, which is headquartered in both London and Johannesburg, fell 6 percent.
Additional reporting by Danilo Masoni; Editing by Gareth Jones