London stocks fell on Thursday as the Bank of England stood pat on interest rates, as widely expected, but with a surprisingly close vote.
The FTSE 100 ended down 0.9% at 10,309.22, having breached 10,400 for the first time on Wednesday.
The rate-setting Monetary Policy Committee agreed by a majority of five to leave interest rates at 3.75%, with the remaining four members backing a cut to 3.5%. Although the decision to leave Bank Rate unchanged was expected, the closeness of the vote, alongside the MPC's accompanying minutes, boosted expectations for a cut in the coming months, potentially as early as March.
Susannah Streeter, chief investment strategist at Wealth Club, said: "The Bank of England has pushed a big red pause button on interest rate cuts as caution remains the name of the game and policymakers assess flickering growth and stubborn inflation. Although the signs are that the price spiral will be dampened down in the coming months, they've judged that it's still too early to move, especially given signs that growth in the economy is showing tentative signs of making a comeback. The latest PMI snapshot showed activity accelerating with Budget blues being cast aside.
"Plus, with headline inflation ramping up at the last count, and wage growth still uncomfortable, it's not a clement environment for interest rate cuts. Still, it was a closer call than expected, and it puts a cut in March still very much in the picture. The labour market is showing weakness, Budget changes are set to bring down energy and transport costs and a wave of cheaper Chinese goods are heading this way. So, more policymakers could well be swayed to vote for lower borrowing costs next month."
The European Central Bank also kept rates unchanged as widely expected, at 2%.
Elsewhere, investors were mulling a survey showing that the downturn in the UK construction sector eased in January.
The S&P Global construction purchasing managers' index rose to 46.4 from December's five-and-half year low of 40.1. This was still below the 50.0 level that separates contraction from expansion but marked the highest reading since June 2025.
In equity markets, Glencore slumped after Rio Tinto said it has abandoned merger talks as the miners failed to reach an agreement "that would deliver value to its shareholders".
For its part, Glencore said the key terms of the potential offer were Rio Tinto retaining both the chairman and chief executive officer roles and delivering a proforma ownership of the combined company. It said this "significantly undervalued Glencore's underlying relative value contribution to the combined group, even before consideration of a suitable acquisition control premium".
Entain was under the cosh, having surged on Wednesday after it said that BetMGM, its joint venture with MGM Resorts, performed ahead of expectations in 2025.
Hikma Pharmaceuticals lost ground after Brookfield confirmed after the close on Wednesday that it does not plan on making an offer for the company.
Vodafone slid after saying it expects full-year earnings to be at the upper end of forecasts, but German growth at the telecoms operator disappointed.
Shell gushed lower as it posted a slump in quarterly earnings after lower prices and a rise in operating expenses weighed heavily. Income attributable to shareholders was $4.1bn in the final three months of 2025, a 22% drop on the third quarter.
Adjusted earnings tumbled 40% to $3.3bn. In the fourth quarter of 2024, adjusted earnings were $3.7bn. Shell blamed the decline on "unfavourable tax movements...lower marketing margins, lower realised prices and higher operating expenses".
Banks were under pressure, with NatWest, Lloyds and Barclays all weaker.
Compass was also in the red even as the catering firm backed its full-year guidance following a strong start to the year.
Defence firm Babcock was hit by a downgrade to 'neutral' from 'buy' at Citi, while Paragon Banking retreated as it traded without entitlement to the dividend.
Telecommunications giant BT fell despite saying it was on track to meet full-year guidance as its third-quarter results met expectations, with revenue down 4% on the year and adjusted EBITDA 1% lower.
On the upside, software stocks were the standout gainers as they recovered from the selloff of the last two sessions, with LSEG, Sage, Experian and Relx among the top performers on the FTSE 100.
Ithaca Energy shot up after a well-received full-year update, while Playtech gained as it said full-year adjusted EBITDA was set to be "significantly" above consensus expectations following a strong second half.