After falling as much as 3.5 percent in afternoon trade, the blue-chip FTSE 100 index closed 2.6 percent lower. It was dragged down by losses in mining, personal goods maker and bank stocks. The domestically focused mid-cap FTSE-250 index slid 1.9 percent.
It came amid fears over whether the UK and EU would secure a Brexit agreement to be in place at the end of the year.
Reports also emerged that Prime Minister Boris Johnson is under pressure for a new lockdown to tackle an accelerating second wave of infections.
“The markets don’t like uncertainty, and with case loads up, there’s chatter about potential universal lockdowns, which would be devastating for the economy and the market,” said Greg Swenson, founding partner of Brigg Macadam, a London-based investment bank.
On Wednesday Michael Gove wrote in a letter to a Welsh minister saying that Britain would not back down on its demands to the European Union over fisheries.
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5.00pm update: FTSE-100 down
The FTSE-100 index at the close was down 146.19 at 5582.80.
The FTSE Mid-250 index closed down 338.80 at 17248.91.
3.35pm update: Expert comments on sinking stocks
Stocks tumbled across the globe on Wednesday on concerns that rising COVID-19 cases in Europe, the United States and elsewhere will damage already-fragile economic recoveries.
“Whether you call it a continuation of the pandemic or a third wave of new case discovery – it is the largest concern,” said Art Hogan, chief market strategist at National Securities in New York.
“Unless and until we get through this pandemic, it is hard for investors to imagine a better economic time.”
2.45pm update: FTSE-100 struggling still
The FTSE-100 index at 2:45pm was down 182.88 at 5546.11.
1.35pm update: FTSE continues to struggle
The FTSE-100 index at remains significantly down as it suffers its worst day in six months.
Sterling is also suffering. It has today witnessed prices of an eight-day low of $1.2922.
12.05pm update: Euro dips on French lockdown fears
The dollar rose against the euro on prospects of a national coronavirus lockdown in France.
President Emmanuel Macron will give a televised address on Wednesday, amid media reports that the French government may impose a lockdown from midnight on Thursday.
The European Commission proposed on Wednesday a series of new measures to fight the COVID-19 pandemic in the European Union, saying the new spike in infections on the continent was “alarming”.
10.45am update: FTSE recovers slightly
The FTSE-100 index at 10:45am was down 81.05 at 5647.94.
9.45am update: FTSE-100 down
The FTSE-100 index at 9:45am was down 91.47 at 5637.52.
9.00am update: Expert comments on global markets
John Woolfitt, director of trading at Atlantic Capital Markets, warned of uncertainty.
He said: ”Global markets look incredibly nervous, the mix of rising COVID-19 cases and deaths and the potential full lockdown in France, add this to the uncertainty ahead of the US elections and you have a very poor backdrop.
“I don’t expect this to be long-term, but nervousness will continue until elections are done and some form of steadying in the COVID-19 numbers.”
8.15am update: FTSE-100 falls
The FTSE-100 index at 8:15am was down 109.38 at 5619.61.