(Reuters) -Britain’s FTSE 100 dropped to a four-week low on Thursday after the U.S. Federal Reserve projected fewer interest rate cuts than expected in 2025, while the Bank of England kept borrowing costs on hold.

The FTSE 100 fell 1.1%, hitting its lowest since Nov. 21, while the mid-cap FTSE 250 lost 0.9%, its lowest in four weeks.

The Fed on Wednesday said it expected to make just two 25 basis point cuts in 2025, half a percentage point less than its September forecast and raised inflation expectations for the next year.

“The shockwaves from last night’s ‘hawkish cut’ by the Fed continue to reverberate. Investors had hoped for an eventful meeting, but the FOMC’s shift to a more cautious outlook caught the market napping,” said Chris Beauchamp, chief market analyst at online trading platform IG.

Meanwhile, the BoE held interest rates at 4.75%, despite signs of a slowing economy, as persistent inflation pressures restricted it to a “gradual” approach towards cutting borrowing costs.

A dovish message from the central bank, however, dented the outlook for sterling. [GBP/]

“The market has started to see the UK in particular as a stagflationary story – an outlook that could keep rates higher even if growth grinds to a halt and unemployment rises,” HSBC economists said in a note.

Rate-sensitive real estate investment trusts and real estate led broader sectoral losses with a 2.5% and 2.4% decline respectively.

Industrial metal miners also fell 2.1% tracking copper prices that dropped to a five-week low. [MET/L]

In a rare bright spot, shares of water utility firms rose after water regulator Ofwat allowed bills to rise by 36% in the next five years. Severn Trent was up 0.9%.

Meanwhile, Serco Group was at the top of the few gainers on the mid-cap FTSE 250 index, up 8.4%, following the outsourcing company’s outlook for 2025.

(Reporting by Ankika Biswas and Sukriti Gupta in Bengaluru; Editing by Tasim Zahid and Alex Richardson)