The Ftse 100 finished marginally lower on Wednesday as figures revealing the UK economy contracted more than expected in July clouded the outlook ahead of upcoming Central Bank Meetings.

The UK blue-chip index closed down 0.02% while the midcap FTSE 250 ended a touch higher, up 0.1%. The data showed Britain’s GDP shrank 0.5% in July, more than the 0.2% slide forecast.

The worse-than-expected contraction “will encourage fears that higher interest rates are biting,” said Davy Research’s Conall MacCoille. It suggests the UK faces “flat growth at best” in the second half, he added.

The figures set the scene for next week’s Bank of England policy decision, with markets split on whether a 50 or 75 basis point hike is on the cards. The more downbeat data boosts the case for less aggressive tightening.

Meanwhile, investors are also eyeing the European Central Bank meeting on Thursday. The ECB is expected to lift rates but may signal a slower pace of hikes after recent soft data.

In individual stocks, insurer Aviva jumped 4.5% to lead FTSE 100 gainers after agreeing to sell its Singapore business for around £800 million and return cash to shareholders.

Housebuilder Redrow surged 7% in the FTSE 250 despite warning of a significant drop in full-year revenue and profit as difficult housing market conditions persist.

Online holiday firm On The Beach gained 13% after predicting it will meet full-year guidance and deliver record bookings. But tracker firm T42 plunged 15% on ending an underperforming distribution contract.

Across the Atlantic, Wall Street shook off hotter-than-expected US inflation data as markets still expect the Federal Reserve to slow its tightening push. Its policy decision is due next Wednesday.

With recession risks rising but inflation still high, central banks continue facing a tricky balancing act. But cooling price pressures may allow some to begin signalling an end to aggressive hikes.