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Updated at 1550 GMT

By Pranav Kashyap and Shubham Batra

June 21 (Reuters) -London stocks closed the week on a positive note after domestic inflation fell to the Bank of England's 2% target earlier this week, raising bets of an interest rate cut in August, but a hot reading of the retail sales tempered some of that optimism.

The FTSE 100 .FTSE was down 0.4% on the day, while it logged a 1% advance for the week and snapped a five-week losing streak.

The mid-cap FTSE 250 .FTMC fell 0.3% on the day but held some ground to log its first weekly gain in four.

British retail sales rose by 2.9% in May, rebounding sharply from a revised 1.8% decline in April. Economists' poll had forecast sales volumes would increase by 1.5%.

Meanwhile, British businesses are expanding at the slowest pace since the economy was in recession last year, as some companies put big decisions on hold until after July 4's election.

Investor sentiment in Britain is gradually brightening after comments from the BoE on Thursday brought an August rate cut into play and inflation returned to its 2% target for the first time in nearly three years in May.

Markets are currently pricing in a 47% chance of a rate cut in August.

The personal goods sector .FTNMX402040 advanced 0.5% on Friday, making it the top performer among FTSE 350 sectors, while banks .FTNMX301010 were the worst performers with a 1.6% fall.

Among individual movers, shares in Britvic BVIC.L surged 7.8% after the soft drinks maker rejected a revised, unsolicited, possible cash offer from Carlsberg Group CARLb.CO.

United Utilities UU.L gained 1.6% after J.P.Morgan upgraded the stock to "overweight" from "neutral".

B&M BMEB.L fell 1.7% after Morgan Stanley lowered its rating to "underweight" from "equal weight".

Reporting by Pranav Kashyap in Bengaluru; Editing by Saumyadeb Chakrabarty, Nivedita Bhattacharjee and Emelia Sithole-Matarise

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