Britain’s blue-chip index recorded its strongest weekly gain in six months, driven by a rotation into defensive sectors and eased concerns over government fiscal policy.

The FTSE 100 closed 0.38% higher at 10,881.90 points on Friday, logging a weekly gain of 3.1%, its biggest since early April, while the midcap FTSE 250 rose 0.45%.

Investors fleeing AI-linked stocks sought shelter in consumer staples and other defensive areas, helping offset broader technology-related selling pressure across global markets.

Finance minister John Healey’s reaffirmation of his commitment to fiscal discipline on Thursday provided an additional boost to risk appetite, particularly among rate-sensitive sectors.

Homebuilders surged more than 6% over the course of the week following Healey’s comments, reflecting relief that the government intends to maintain budgetary restraint going forward.

Banks were more subdued on Friday, clawing back early losses that were triggered by a report suggesting Healey was likely to levy a tax on lenders in the upcoming budget.

Consumer staples were among the standout performers, with cigarette maker British American Tobacco rising 2.1% and Johnnie Walker owner Diageo gaining 1.9% on the day.

The beverages sector and the medical equipment and services sector posted weekly advances of 7.8% and 6.9%, respectively, underlining the breadth of the defensive rotation.

Defence stocks also extended their recent strong run, with BAE Systems climbing 2.6% and Babcock International rising 3.6%, continuing a rally that has gathered pace in recent weeks.

E-commerce firm THG had its best week in six months, surging 30% after raising its annual adjusted core profit forecast on Thursday, making it one of the index’s most striking movers.

UK large-cap ETFs attracted $3.38 billion in estimated net inflows year to date, already the biggest annual total since 2020, according to data from Morningstar.

Michael Born, an analyst at Morningstar, said: “Flows into passive funds typically follow performance, but they also reflect investors looking to diversify away from US mega-cap technology and broaden their equity exposure.”

Bank of England Governor Andrew Bailey stated that signs of second-round inflation remained limited, offering cautious optimism ahead of next week’s closely watched inflation data release.

Traders are currently pricing in four Bank of England rate cuts over the next 12 months, according to data from LSEG, reflecting expectations of a gradual easing cycle ahead.