The blue-chip FTSE 100 ended 0.6% higher, with retailers gaining nearly 2% as shoppers rushed rushed back to clothes and furniture stores last week when they reopened after three months of COVID lockdown restrictions.

The pound fell 0.6%, erasing the week's gains against the dollar, as investors weighed up the outlook for an economic recovery in Britain.

The domestically-focussed mid-cap index gained 1.3%, with construction company Morgan Sindall up 19.6% as brokerages raised their price targets on the stock after it raised its annual outlook.

"The markets are optimistic about the economic rebound process as the vaccination drive gathers more ground and there remains significant upside as there is still a large area until we get back to pre-COVID levels," said Michael Baker, an analyst at ETX Capital.

The FTSE 100 has gained ~7% year-to-date on optimism that speedy COVID-19 vaccinations and constant policy support from the government would drive a stronger economic recovery, however it has largely underperformed its European peers.

British manufacturers' hopes for an economic rebound to their strongest in 48 years this month as the country began to recover from the slump caused by the COVID-19 pandemic, the Confederation of British Industry said, further aiding sentiment..

Among other stocks, Russia's Polymetal International added 2.1% after its first-quarter production grew 3%.

Britain's Metro Bank gained 0.6% on aims to expand its consumer finance lending tenfold to 2 billion pounds ($2.78 billion), a source familiar with the plan told Reuters, as it seeks to reverse a sharp downturn in its fortunes in the last two years.

(Reporting by Devik Jain in Bengaluru; Editing by Uttaresh.V, Shounak Dasgupta and Angus MacSwan)

By Devik Jain and Shashank Nayar