By Siddarth S and Shubham Batra
(Reuters) -UK's FTSE 100 had its worst day in over a month on Monday, dragged by a drop in shares of automobiles and parts, while investors awaited key central bank interest rate decisions this week.
The exporter-heavy FTSE 100 was down 0.8%, led by a 6.1% decline in automobiles and parts index.
The mid-cap FTSE 250 logged its worst day in over two months, falling 1.8%.
The focus remained on the U.S. Federal Reserve, which is widely expected to pause interest rate hikes on Wednesday, followed by Bank of England's policy decisions as well as key domestic inflation data later this week.
Money markets see an 80% chance of BoE hiking rates by 25 basis points (bps) to 5.5% on Thursday.
Also, Goldman Sachs lowered its forecast for the BoE's terminal rate to 5.5%.
"Despite the UK having the highest inflation rates of any major developed economy, the BoE appears to be near the end of the rate hike path," said Ronald Temple, chief market strategist at Lazard.
"My confidence in this assessment is lower than that of the U.S. and Eurozone, given the broad-based elevated price pressures."
Rate-sensitive homebuilder and real estate shares dropped 3.0% and 2.7%, respectively.
Shares of Mondi Plc jumped 3.3% as the British paper and packaging company agreed to sell its largest plant in Russia to a unit of Moscow-based real estate developer Sezar Group for 80 billion roubles ($825.7 million) in cash.
Britain's main manufacturing trade body cut its sector growth forecast for this year and next, citing a sharp fall in factory output and economic uncertainty.
Shares of online grocer Ocado Group rose 3.1% after brokerage Jefferies raised the stock's price target.
Marks & Spencer climbed 1.3% as the retailer's stock started trading on the FTSE 100, after being promoted in September.
(Reporting by Siddarth S and Shubham Batra in Bengaluru; Editing by Savio D'Souza, Sohini Goswami and Richard Chang)