The FTSE <.FTSE> was closed 1.5 percent lower at 7,170.69 points. The index is down 6.7 percent in the year to date, making it the worst performer among top European bourses.
The Bank of England said that interest rates probably need to rise sooner and by a bit more than it thought only three months ago, which boosted sterling.
The rise in the currency weighed on the FTSE's predominantly dollar-earning firms, with shares in heavyweight consumer staples British American Tobacco (>> British American Tobacco), Reckitt Benckiser (>> Reckitt Benckiser) and Unilever (>> Unilever) dropping 1.8 percent to 3.2 percent.
"We are growing cautious on those companies which rely heavily on overseas earnings, as rising interest rates could cause the pound to strengthen further from here," Andrew Morgan, portfolio manager of Alpha:r² at Walker Crips, said.
"We continue to be relatively defensively positioned in equities, despite the recent dip, and are looking at certain sectors - such as Financials - which tend to benefit from a rising interest rate environment," Morgan added.
On the day shares in banking stocks RBS (>> Royal Bank of Scotland Group), Barclays (>> Barclays) and Lloyds (>> Lloyds Banking Group) were among the dozen or so stocks in positive territory, up 0.4 percent to 1 percent.
GlaxoSmithKline (>> GlaxoSmithKline) was another riser, up 1.4 percent after U.S. regulators delayed approval of a generic copy from Novartis of its blockbuster Advair lung drug and after the group took legal action against Gilead Sciences (>> Gilead Sciences) over a new HIV drug.
The news helped build confidence after an upbeat results presentation by GlaxoSmithKline on Wednesday. Competitive threats to its respiratory and HIV businesses are seen as key risks for the company's stock.
AstraZeneca (>> AstraZeneca) rose 1.2 percent, boosted by a price target upgrade from Berenberg.
WPP (>> WPP Group) rose 3.1 percent following a reassuring update from French peer Publicis (>> Publicis Groupe), while Compass (>> Compass Group plc), the world's biggest catering firm, jumped more than 5 percent after it raised its expectations for revenue growth.
Their gains however were more than offset by broad-based weakness as markets remained nervous following a sell-off earlier this week triggered by a spike in global yields and volatility.
Miners, along with energy stocks, were a big weight on the FTSE, with the two commodities-related sectors collectively wiping around 40 points off the index, as prices of copper <CMCU3> and other metals fell and oil retreated.
Precious metals miner Randgold (>> Randgold Resources) fell 2.4 percent after HSBC raised its rating on the stock but trimmed its price target. Antofagasta (>> Antofagasta) and BHP Billiton (>> BHP Billiton Plc) were also both down around 2.5 percent.
Among midcaps, Sophos (>> Sophos Ltd) fell 17.5 percent after the cloud services provider reported slower growth in the amount it bills its customers, while TalkTalk (>> TalkTalk Telecom Group) slumped after flagging a dividend cut and a cash call.
(Reporting by Danilo Masoni and Kit Rees; Editing by Peter Graff)
By Danilo Masoni and Kit Rees
Stocks treated in this article : Publicis Groupe
, Gilead Sciences
, Unilever (NL)
, Lloyds Banking Group
, BHP Billiton Plc
, British American Tobacco
, TalkTalk Telecom Group
, Reckitt Benckiser
, Randgold Resources
, Royal Bank of Scotland Group
, WPP Group
, Sophos Ltd
, Compass Group plc