The FTSE 100 shed 0.3% and mirrored a drop in the broader European index, whose losses were somewhat cushioned by gains in technology stocks following Capgemini's purchase of engineering and digital services firm Altran .

The mid-cap FTSE 250 lost 0.5% by 0800 GMT.

Investors opted for a risk-off approach after President Donald Trump targeted Iranian Supreme Leader Ayatollah Ali Khamenei and other top Iranian officials with sanctions, further straining the geo-political dynamics in the Middle East.

This is most likely to elevate uncertainty over how talks between Trump and his Chinese counterpart Xi Jinping would pan out at the G20 summit.

Fears that the protracted trade war, which has stunted global economic growth for nearly a year, could further escalate hit shares of HSBC and other Asia-focussed banks.

"Optimism is fading a little and we would expect investors to perhaps take some risk off the table ahead of the meeting, particularly given the recent bump," Markets.com analyst Neil Wilson said.

Sales at British supermarket chains fell during the 12 weeks to June 16, losing further ground to discounters Aldi and Lidl, industry data showed.

Tesco and Morrisons, which fell in the previous session after a downbeat consumer spending forecast, lost 2% each.

Internationally exposed stocks also declined as the pound capitalised on the broader weakness of the dollar, with traders betting on more dovish signals from Fed Chairman Jerome Powell.

Carpetright, Britain's biggest floor coverings retailer, surged as much as 23% as it returned to underlying sales growth in its new financial year and said its turnaround was on track.

"Time will tell whether Carpetright can reinvigorate its reputation, however, the omens are positive," CMC Markets analyst Michael Hewson said.

On the mid-cap index, Petrofac tumbled 5% after the oilfield services provider, dogged by legal challenges over the last two years, said its business was hit by challenges in Saudi Arabia and Iraq.