The UK's main stock indexes rallied to close over 1% higher on Friday and notched steep weekly gains after a slew of economic data spurred expectations among investors that interest rates have peaked.

The blue-chip FTSE 100 rose 1.3%, while the midcap FTSE 250 index added 1.2%.

Despite Thursday's selloff, the indexes looked set to end the week sharply higher as cooling inflation and signs of softening economic growth spurred bets of interest rates cuts by the Bank of England.

The benchmark index was up nearly 2% for the week, its best weekly performance in nine, while the FTSE mid-cap index closed 4% higher during the same period.

British retail sales volumes fell unexpectedly in October as stretched consumers stayed at home, official data showed on Friday in a new warning sign for the economy.

"Having enjoyed the post-Covid rally in spending, it now appears consumers are feeling much more cautious," said Emma Mogford, fund manager at Premier Miton Monthly Income Fund.

The data painted a gloomy picture of UK consumers, but also meant that traders were pricing in the possibility of interest rate cuts.

Futures markets show traders expect interest rates to fall by around 80 basis points by the end of 2024 from 5.25% currently, compared with a decline of just over 50 bps a week ago.

Tesco added 0.3% after Reuters reported Barclays has been exploring a potential acquisition of the retailer's banking operations. Shares of the lender added 2.7%.

London Stock Exchange Group added 1.6% after the stock exchange operator raised its mid-term growth guidance and said it would return a billion pounds ($1.24 billion) to shareholders in 2024.

AstraZeneca rose 0.9% after the U.S. health regulator approved its Truqap in combination with an older drug, providing another treatment option for patients with the most common type of breast cancer.

FirstGroup climbed 1.4% and hit over a 10-year high after the transport operator said it will form a joint venture with Japan's Hitachi for leasing up to 1,000 electric bus batteries for about 100 million pounds ($123.9 million).

(Reporting by Sruthi Shankar in Bengaluru; Editing by Sohini Goswami and Shinjini Ganguli)