By Sruthi Shankar
(Reuters) -UK stock indexes posted their biggest weekly declines in two months on Friday, hit by a recession warning from the Bank of England and disappointing results from the owner of British Airways.
International Consolidated Airlines Group tumbled 8.3% after it reported a bigger-than-expected quarterly operating loss and scaled back plans to ramp up short-haul flights at Heathrow airport.
The blue-chip FTSE 100 closed down 1.5% and the domestically oriented midcap FTSE 250 index fell 1.4%, resulting in weekly losses of 2.1% and 4.3%, respectively.
The Bank of England (BoE) warned on Thursday that Britain risked the double-whammy of a recession and inflation above 10% as it raised interest rates to their highest since 2009.
"The gloomy economic outlook will likely limit the BoE's ability to tighten policy aggressively," analysts at BCA Research said in a note.
The FTSE 100, however, has outperformed major stock markets so far this year as a surge in oil and metal prices, as well as weakness in sterling, boosted commodity giants and exporters.
"The FTSE 100 is exposed to all the sectors that are causing inflation concerns, and that benefits the UK equity market," said Caroline Simmons, UK chief investment officer at UBS Global Wealth Management, who expects the index to hit 8,100 by the end of the year.
"It hurts the economy because of the consumer squeeze but it benefits the FTSE 100. Now, of course, sterling has weakened and that's also helpful."
Sterling dropped below 1.23 against the dollar for the first time in nearly two years on concerns about the economic outlook as well as local elections. [GBP/]
British Prime Minister Boris Johnson's Conservative Party lost control of traditional strongholds in London and suffered setbacks elsewhere in local elections, with voters punishing his government over a series of scandals.
Among the bright spots, insurer Beazley Plc gained 5.9% after it reported a surge in quarterly gross written premium.
Digital advertising group S4 Capital jumped 9.8% after delayed full-year results showed a 44% increase in 2021 gross profit.
(Reporting by Sruthi Shankar in BengaluruEditing by Vinay Dwivedi and Mark Potter)