UPDATE 1-London stocks drop after Powell calls out high inflation; ECB decision on tap

London's FTSE 100 edged lower on Thursday as investors remained concerned about the U.S. Fed's rate hike trajectory after Chair Jerome Powell talked about high inflation, though gains in Shell after its quarterly results limited declines.

London's FTSE 100 edged lower on Thursday as investors remained concerned about the U.S. Fed's rate hike trajectory after Chair Jerome Powell talked about high inflation, though gains in Shell after its quarterly results limited declines. The blue-chip index the mid-cap FTSE 250 index shed 0.4% each, as of 0816 GMT.

The Fed raised interest rates by an expected 25 basis points on Wednesday and signalled it may pause further increases. However, Fed Chair Jerome Powell's view that inflation was still a concern caused uncertainty among investors about the monetary policy trajectory in the world's largest economy.

Investors also await the European Central Bank's rate decision due at 1215 GMT. "Markets were doing quite decently yesterday during the Fed meeting. But then they were disappointed by the fact that Powell said inflation is still pretty high," said Michele Morra, portfolio manager at Moneyfarm.

Moreover, the ongoing monetary tightening could increase the risk for banks, impacting UK markets, Morra added. Oil and gas stocks rose 1.1%, led by a 1.8% rise in Shell as the oil giant posted a first-quarter net profit of $9.65 billion, topping analysts' forecasts.

Base metal miners fell 1.6%, even as metal prices rose, as a weaker-than-expected demand recovery in top consumer China dented sentiment. Among other major movers, Hargreaves Lansdown rose 4.4% after the investment manager reported a jump in its assets under administration (AUA), supported by an increase in its net new business.

BAE Systems said elevated threat levels from the war in Ukraine were continuing to boost sales, and the AUKUS submarine defence pact would help deliver growth. Shares of the defence company, however, were down 1.3%.