The blue-chip FTSE 100 index dropped 0.4% with Unilever being the main drag, while energy stocks fell 1.6%, despite a jump in oil prices.
Unilever Plc was down 5.9% after it warned that surging commodity costs would squeeze its full-year operating margin, overshadowing strong second-quarter sales growth.
"Markets appear to be caught in a pincer movement between concerns over rising inflation, and slowing growth ... this is no better reflected in the latest numbers from Unilever," said Michael Hewson, chief market analyst at CMC Markets.
However, commentary from Bank of England's deputy governor Ben Broadbent helped calm some of the inflation fears after he said the current spike in prices is unlikely to create longer-term inflation pressures.
The domestically focussed mid-cap index rose for the third straight session to end 0.6% higher, helped by upbeat quarterly results from Howden Joinery Group and IG Group.
The blue-chip FTSE 100 index has gained 7.9% so far this year, helped by government stimulus and re-opening optimism, but is nearly 11% away from its all-time high. It is still underperforming the mid-cap index, which is just 1.2% away from its record high.
British retailers and manufacturers have grown optimistic on growth prospects as the economy bounces back from the pandemic lockdowns, research showed, with UK manufacturers' expectations for growth in output over the next three months being strongest on record.
Among stocks, transport firm FirstGroup jumped 3.1% after it increased its planned shareholder returns by 135 million pounds ($185.29 million).
Workspace Group Plc gained 1.7% after it said it expected strong signs of businesses in London returning to work with easing of pandemic-related restrictions.
(Graphic: ULVR performance, )
(Reporting by Shashank Nayar in Bengaluru; Editing by Uttaresh.V and Arun Koyyur, William Maclean and David Evans)
By Shashank Nayar