May 7 (Reuters) - Britain's FTSE 100 dropped on Thursday, as losses in oil majors Shell and BP and defence firms weighed, while Britons headed to the polls in local and regional elections.
The blue-chip FTSE 100 index closed 1.6% lower at 10,276.95 points after surging more than 2% in the previous session. The midcap FTSE 250 gained 0.2%.
o The elections could deal a huge blow to Prime Minister Keir Starmer's Labour Party, renewing scepticism about his ability to govern. They could also signal the beginning of the end of Britain's traditional two-party system.
o A recent survey showed that in April, British builders saw one of the biggest month-on-month jumps in cost inflation.
o The pound rose against the dollar on hopes that an end to the U.S.-Iran conflict was near, pressuring multinational firms that earn most of their revenue overseas.
o With earnings season in full swing, markets are assessing consumer demand and any economic impact from the Middle East conflict.
o Shares of oil major Shell dropped 2.9% despite reporting its highest quarterly profit in two years and raising its dividend. Rival BP fell 2.6%, as oil's slide below $100 weighed on its stock. [O/R]
o Shares of BAE Systems were down 4.7%, among the biggest drags on the FTSE 100, after the defence firm maintained its full-year outlook.
o InterContinental Hotels Group rose 1.5% after topping quarterly room revenue estimates as its U.S. business rebounded.
o Autotrader Group gained 4.1% after a source told Reuters that activist investor Palliser Capital had built an up to 2% stake in the company.
o Helios Towers jumped 14.3%, lifting the mid-cap index, after the mobile tower operator raised its annual profit forecast.
o RELX dropped 6.2% after Morgan Stanley downgraded its rating on the information group to "equal-weight" from "overweight". Shares of the company were also trading ex-dividend on Thursday.
(Reporting by Medha Singh and Shashwat Chauhan in Bengaluru; Editing by Diti Pujara and Alex Richardson)
