London's blue-chip FTSE 100 index ended lower on Tuesday, dragged down by heavyweight homebuilders and financial stocks, while the technology company Smiths Group topped the index after delivering strong annual earnings.
The FTSE 100 index eased 0.5%, with the housebuilder index and financials leading declines.
The domestic-focused mid-cap index dropped 1.7%, recording its worst session in over two months, with travel and leisure stocks among the top losers.
The FTSE 100 has gained 9.8% from its lowest point this year, buoyed by strong second-quarter earnings and dovish central bank policies. Its pace of growth has, however, slowed recently due to inflation concerns.
Kunal Sawhney, chief executive officer at Kalkine, said rising inflation pressures as energy prices continue to rise amid supply bottlenecks had unnerved UK investors fearing that higher interest rates could be brought forward.
Higher costs and supply chain disruptions have recently pushed central banks to adopt a more hawkish tone, with Bank of England Governor Andrew Bailey hinting that the case for higher interest rates is building.
FTSE 100 slips as slowdown worries, inflation fears persist
The wider homebuilder index fell 3.0%, hitting its lowest level in more than two months. Taylor Wimpey, Bellway and Countryside Properties were down between 2.7% and 4.0%.
"When you've got hawkish language, interest rate-sensitive sectors such as house builders and other utilities are the ones hit," said Keith Temperton, sales trader at Forte Securities.
Further losses were limited by gains in energy stocks , which tracked stronger oil prices.
British software automation company Blue Prism Group dropped 4.0% after agreeing to a 1.1 billion pound ($1.5 billion) takeover offer from American private equity firm Vista Equity Partners.
British online greetings card retailer Moonpig fell 5.1%, despite raising its annual revenue forecast.
However, Smiths Group jumped 4.1% after signing a binding agreement to sell its medical devices unit, Smiths Medical, and declaring a dividend of 26 pence after robust annual earnings.