London stocks slump as recession risks dent appetite

May 12 (Reuters) - UK shares dropped on Thursday as risk appetite shrank after data showed the British economy weakened in March, and persistently hot U.S. inflation data exacerbated investors' fears of aggressive rate hikes.

The blue-chip FTSE 100 closed 1.6% lower, while the domestically-focused mid-cap index slipped 0.9%.

Oil majors BP and Shell fell 4.7% and 3.3%, respectively, while miners declined 3.9%, tracking the drop in commodity prices on demand concerns and recession fears.

Banking stocks dropped 2.0% as the likelihood of an economic slowdown and of recession in Britain weighed on cyclical stocks, senior analyst at Swissquote Bank Ipek Ozkardeskaya said.

"There is a rising fear that economic slowdown is going to be the major theme this year and the Bank of England also said it is expecting a recession before the end of this year. The data is a confirmation that UK recovery is slowing down," Ozkardeskaya said.

Data showed Britain's economy unexpectedly shrank by 0.1% in March, but expanded by 0.8% for the first quarter of 2022 as a whole, in what is likely to have been a high point for 2022 as the cost-of-living crisis increasingly bites.

Adding to concerns, Deputy Governor Dave Ramsden told Bloomberg News that the Bank of England will have to increase borrowing costs to control rapid inflation.

Among individual movers, BT Group rose 1.0% after the broadband and mobile operator said it had finalised the deal to combine its sports broadcasting unit with Discovery Inc .

JD Sports gained 6.6% and was among the top gainers after Britain's largest sportswear retailer raised its annual profit outlook for 2022.

Shares of Rolls-Royce rose 1.1% as the engine manufacturer said it traded in line with estimates in the first four months of the year. (Reporting by Bansari Mayur Kamdar and Amal S in Bengaluru; Editing by Sherry Jacob-Phillips and Barbara Lewis)