The FTSE 100 Index closed lower after official figures revealed the UK economy shrank in the fourth quarter and delivered a blow to recovery hopes.
The Footsie closed 26.1 points lower at 5917.7 after the Office for National Statistics (ONS) said gross domestic product declined by 0.5% between October and December.
While the drop was blamed on weather factors, economists said the report heightened fears over the ability of the UK to withstand austerity measures.
Sterling was down more than 1.5% against the US dollar at 1.58 and dropped 1.2% to 1.15 euro as traders bet the GDP news would put back the timing of any rise in interest rates.
Unsurprisingly, consumer-facing stocks were among those unnerved by the weaker growth prospects as Next dropped 67p to 2075p, Marks & Spencer fell 8p to 361.4p and Tesco declined 6.5p to 399p.
In the banking sector, Lloyds Banking Group eased 1.9p to 63.2p, Royal Bank of Scotland dropped 0.8p to 43.3p and Barclays weakened 2.1p to 298.5p.
The market was also hampered by weaker commodity stocks as investors continued to worry about possible moves by China to curb soaring economic growth. Randgold Resources was among the fallers, dropping 180p to 4855p, while Kazakhmys fell 58p to 1500p.
One of the most significant moves in the top flight came from BSkyB after Culture Secretary Jeremy Hunt delayed a decision on whether to refer News Corporation’s planned takeover of the broadcasting giant for a full-blown competition inquiry. With the company also due to post strong half-year results on Thursday, BSkyB shares lifted 2p to 752p.
Meanwhile fashion house Burberry topped the risers’ board, after peer Luxottica, which manufactures sunglasses for luxury brands such as Armani and Ray-Ban, posted a bullish trading update. Burberry jumped more than 3% or 33p to 1063p.
The biggest Footsie risers were Burberry up 33p at 1063p, Resolution ahead 7.7p at 253p, Inmarsat up 5p at 636p and Prudential ahead 13.5p at 668p while the biggest fallers were Kazakhmys down 58p at 1500p, Randgold Resources off 180p at 4855p, International Consolidated Airlines down 10p at 275p and Fresnillo off 43p at 1312p.