(Reuters) - London stocks advanced on Friday as the pound fell following a retail sales reading that boosted expectations of a Bank of England interest rate cut next month, with the blue-chip FTSE 100 hitting all-time highs.

The FTSE 100 was up 1.1% as of 1034 GMT, hitting record highs and on track for a fourth straight weekly advance. The midcap index rose 0.2%, on track for its best weekly showing since October 2023.

Retail sales, adjusted for the inclusion of the Black Friday sales at the start of the month, fell by 0.3% month-on-month in December after a downwardly revised 0.1% expansion in November, knocking the pound 0.3% lower.

Gilt yields also moved lower across the curve, with the one on the 10-year note at 4.645%.

Traders currently see a 81% chance of an at least a 25-basis-point rate cut by the BoE in February, as per LSEG data.

Most FTSE 350 sectors were trading higher, with chemicals up 1.9%, while oil and gas added 1.4%.

UK equities saw sharp gains this week as British inflation slowed unexpectedly last month and core U.S. inflation was softer than expected, reviving bets of rate cuts by the BoE and the Federal Reserve.

Next week, Donald Trump's inauguration as the U.S. president would be in the spotlight with investors on the lookout for new policies including possible trade tariffs.

Glencore gained 2.7%, while Rio Tinto's London-listed shares were up 1.1%. Glencore approached Rio Tinto late last year about combining the two big copper producers, but the discussions are no longer active, Reuters reported.

Smiths Group added 4.4% after U.S. activist investor Engine Capital, which owns a roughly 2% stake in the engineering firm, called for the British company to sell the company or parts of it.

(Reporting by Shashwat Chauhan in Bengaluru; Editing by Mrigank Dhaniwala)