UK shares fell on Thursday as fears around the Omicron coronavirus variant grew with several countries reporting cases of the new strain, while warnings about inflation from major central banks further added to the downbeat mood.
The benchmark FTSE 100 index declined 0.5% in morning trade, diverging from its Asian peers, while the domestically focussed mid-cap index fell 0.7%.
Bank of England (BoE) Governor Andrew Bailey said on Wednesday that the economic impact from COVID-19 still remains strong, while noting the inflationary pressure from supply chain difficulties and increased demand for consumer goods.
Banks slipped amid uncertainty about whether the BoE will hike interest rates this month.
"Raising interest rates at a time when the economy is expected to slow and see restrictions, maybe potentially even lockdowns, is just going to compound the economic pain," said Oanda analyst Craig Erlam.
"What we're seeing with financials is a reflection of the fact that it (Omicron) makes the central bank's job of tightening monetary policy bit more challenging."
Prime Minister Boris Johnson issued a "call to get jabs in arms" on Wednesday as Britain stepped up its COVID-19 booster programme to fend off the Omicron variant after another 10 cases of the new strain were identified, bringing the total to 32 cases of the variant.
Postal and delivery services firm Royal Mail fell 5.1% to the bottom of FTSE 100 on trading ex-dividend.
Johnson Matthey and Darktrace dropped 1.8% and 3.0% respectively after index manager FTSE Russell confirmed that the companies are set to leave Britain's blue-chip FTSE 100 index.
Halfords Group Plc rose 4.8% after saying it would buy Axle Group for 62 million pounds ($82.54 million) as the cycle retailer shifts focus to its motoring services business.
(Reporting by Bansari Mayur Kamdar in Bengaluru; editing by Uttaresh.V) ((BansariMayur.Kamdar@thomsonreuters.com;))