Britain's latest company results season moves into full swing when BP, Royal Dutch Shell, GlaxoSmithKline and Rolls-Royce are among the corporate giants set to update the market. The FTSE 100 finished Friday at 6,585.20 points, down 131.50 points or 1.96 percent from a week earlier.
Strong earnings next week could see the FTSE rebound next week, according to analysts. "So far in the United States the vast majority of companies have either met or exceeded analysts expectations and that's added confidence that we are going to get a positive reporting season here in the UK," Barclays Stockbrokers analyst Henk Potts said.
"In saying that, there are clearly some hurdles to overcome. One suspects it could be a tough time for some of the retailers, obviously given the (poor summer) weather, (and) given the raises in (British) interest rates," he added.
British retail sales slowed last month, official data showed on Thursday, as the country's wettest June on record kept consumers away from the highest rate.
Retail sales rose by 0.2 percent in June from May and by 3.4 on a 12-month basis. But in May sales had risen by 0.4 and 3.9 percent respectively.
Economic data is being followed closely amid expectations that the Bank of England could raise interest rates at least once more this year. On Friday it was revealed that Britain's economic growth picked up slightly in the second quarter of 2007.
Economists predicted that the five-interest rate hikes since August 2006 would contribute towards slowing growth before the end of 2007.
Bank of England policymakers had voted 6-3 in favour of raising interest rates by a quarter-point to 5.75 percent in July, minutes of their latest meeting showed Wednesday.
The BoE's move to hike the cost of borrowing for the fifth time since August 2006, and to the highest level in more than six years, was aimed at putting a lid on inflation. Next week, oil giants BP and Shell, pharmaceuticals group GlaxoSmithKline and engine maker Rolls-Royce all publish their second-quarter earnings.
Analysts said Friday that British investors would also keep a close watch on US economic woes next week. Federal Reserve chairman Ben Bernanke said Thursday he expects "significant financial losses" from failed sub-prime real estate loans but only a limited effect on the overall economy.
Bernanke, responding to questions in a second day in Congress for the Fed's semi-annual economic report, indicated the problems with sub-prime loans - made to people with weak credit histories - may be greater than expected.
"At the moment it doesn't look like the issues that are facing the United States in terms of the sub-prime market are leaking into corporate profitability, in terms of companies that are listed here in the UK," Potts added.