The FTSE 100 plunged lower on the back of renewed coronavirus worries in China and the European Central Bank’s plan to soon hike interest rates.
Shares across Europe started the day in negative territory following the news that some parts of Shanghai will go into another lockdown with a widespread testing programme to be conducted this weekend.
Losses grew further after the ECB outlined plans for rate rises in July and September.
London’s top flight ended the day down 116.79 points, or 1.54%, at 7,476.21.
The German Dax decreased by 1.73% by the end of the session while the French Cac fell 1.4%.
“It might be late to the party, but the ECB looks committed to raising rates,” commented Chris Beauchamp, chief market analyst at IG.
“This has given fresh impetus to the rush to sell stocks, with Wall Street beginning the day in the red and European markets seeing losses intensify.
“Investors can look at today’s oil prices and realise that high CPI readings aren’t going away, so hopes of a cooling in the pace of central bank tightening are likely to remain unfulfilled.”
Meanwhile, sterling moved lower towards the end of a choppy day for currencies.
The pound was down 0.2% against the dollar at 1.251 and dropped 0.22% against the euro to 1.174.
In London, retail stocks were among the biggest fallers, with Sainsbury’s, Kingfisher and Ocado all dropping amid concerns over how inflation will knock customer sentiment.
In company news, online white goods retailer AO World slipped after it confirmed plans to close its German business after eight years to focus on its UK operations.
The group said it decided the move was the “best course of action” after a strategic review launched in January, and warned that the closure will cost it up to £15 million.
Shares moved 2.15p lower to 71.1p, less than a third of its levels from this time last year.
Elsewhere, Mitie Group shares made gains after the outsourcing firm told shareholders that it would reinstate its dividend and launch a share buyback amid positive trading.
The company had revealed that revenues increased by 58% to £3.99 billion in the year to the end of March, amid a raft of major contract wins.
Mitie shares finished 3.9p higher at 65.5p on Thursday.
Lucky Strike maker British American Tobacco was lower at the close of play after it warned that global tobacco volumes would decline by more than previously expected this year.
It finished 70.5p lower at 3,496p as investors also digested a UK review calling for smoking to be banned in outdoor places such as beer gardens.
The price of oil slipped back from three-month highs after it was reported that Shanghai would introduce restrictions, putting the brakes on optimism about the recovery of energy demand in China.
Brent crude decreased by 0.15% to 123.45 US dollars per barrel when the London markets closed.
The biggest risers on the FTSE 100 were Melrose, up 6.6p at 164.3p, Airtel Africa, up 1.9p at 145.9p, Vodafone, up 1.52p at 126p, Severn Trent, up 14p at 2,902p, and Pershing Square, up 5p at 2,510p.
The biggest fallers were Sainsbury’s, down 13p at 209.4p, WPP, down 41p at 871.8p, Fresnillo, down 33p at 736.2p, Ocado, down 37.2p at 915.4p, and Aveva, down 90p at 2,378p.