By Shashank Nayar
(Reuters) - London's FTSE 100 slipped on Thursday as focus turned to emergency Brexit talks over Prime Minister Boris Johnson's plan to undercut parts of the divorce treaty, while Morrisons tumbled after reporting a drop in half-year profit.
The supermarket group fell 4.3% even as it said it expected profit growth for the full year, taking the FTSE 100 down 0.7%. BP (LON:BP) Plc and Royal Dutch Shell (LON:RDSa) Plc also weighed on the index following a slide in oil prices.
"Markets are moving with heavy caution and we also see investors pulling back on some export-heavy names until they see concrete developments on the Brexit front," said Ronald Kaloyan, head of European equity strategy at SocGen.
The FTSE 100 has been lifted this week by a weaker pound as Brexit fears returned to the forefront with negotiations all but stalling over fisheries and state aid. A recent Reuters poll found chances of the two sides failing to reach a trade deal have jumped to 40%.
Sources said on Thursday the European Union could take legal action if emergency talks do not reassure Brussels sufficiently that a proposed new British law will not break previously agreed commitments.
The mid-cap FTSE 250, considered a barometer of Brexit sentiment, was flat with a slide in banks offsetting a 4.5% jump in retailer Dixons Carphone (LON:DC) Plc following an upbeat earnings report.
The domestically-focussed index has underperformed the FTSE 100 this month as surging COVID-19 cases have sparked a new round of lockdowns in England, threatening a nascent business recovery and hitting shares of restaurant and pub firms.
Homebuilders were among the smallest decliners on the day after data showed house prices hit a four-yeah high in August, although the survey also sent a warning signal that the recovery could run out of steam.
British Airways-owner IAG (LON:ICAG) slipped 2.6% as it launched a heavily discounted rights issue to raise 2.74 billion euros (2.46 billion pounds).