UK shares dropped on Thursday as risk sentiment took a beating after data showed British economy shrank in March, highlighing the cost-of-living crisis while persistently hot U.S. inflation data exacerbated investor fears of aggressive rate hikes.

The blue-chip FTSE 100 was down 2%, as of 0705 GMT, with commodity stocks among the worst performers.

Oil majors BP and Shell fell 4.4% and 2.8%, respectively, while miners declined 4.3%, tracking the drop in commodity prices on demand concerns and recession fears.

The domestically focussed mid-cap index fell 1.6%.

Britain's economy shrank by 0.1% in March, but expanded by 0.8% for the first quarter of 2022 as a whole, in what is likely to have been a high point for 2022 as the cost-of-living crisis increasingly bites, according to data on Thursday.

Rolls-Royce rose 2.5% as the luxury carmaker traded in line with expectations in the first four months of the year, helped by a gradual return to flying and increased government investment in defence.

(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Sherry Jacob-Phillips)