The blue-chip FTSE 100 index slipped 1.1% in choppy trading, dragged lower by mining <.FTNMX1770>, energy <.FTNMX0530> and insurance <.FTNMX8570> stocks.
The domestically-focussed FTSE 250 index slid 1.5% with shares in online trading platform Plus500 Ltd falling 8.2% to the bottom of the index on a dour outlook.
Uncertainty over a Brexit trade deal and concerns about the financial fallout from coronavirus-related restrictions have pressured British markets this month, with data also pointing towards a faltering economic recovery.
The latest industry survey showed Britain's retail sales this month fell to the lowest level since June, after hitting an 18-month high in September.
In the latest round of restrictions, Warrington in northwest England was placed on the highest Tier 3 alert level, while Nottingham in central England and three nearby towns would have similar restrictions from Thursday.
"In recent months, the stock market rally has been driven by easy monetary policy, fiscal stimulus measures and positive developments in the fight against the COVID-19 pandemic," said Milan Cutkovic, market analyst at Axi.
"Removing one of those pillars could leave markets on shaky ground."
The Bank of England is expected to ramp up the size of its asset purchase programme by a further 100 billion pounds on Nov. 5 to support a struggling economy, a Reuters poll of economists found.
Meanwhile, the European Commission said the European Union and Britain are engaging intensively to clinch a Brexit deal on their future relationship.
In a bright spot, Asia-focussed HSBC Holdings Plc jumped 3.4% after it signalled a pandemic-induced overhaul of its business model.
Bloomsbury Publishing Plc gained 18.1% after the Harry Potter publisher posted higher first-half profit and resumed dividend payments.
(Reporting by Devik Jain in Bengaluru; editing by Uttaresh.V, Aditya Soni and Barbara Lewis)
By Devik Jain
