Sharecast - The FTSE 100 was down 0.4% at 7,884.45.
Sentiment, and banking stocks, took a hit after disappointing first-quarter results across the pond from First Republic (NYSE:FRC), which said late on Monday that deposits had fallen by over $100bn.
Russ Mould, investment director at AJ Bell, said: "Its shares fell 22% in after-hours trading after revealing a sharp decline in deposits, prompting speculation it could be the next bank to be taken over."
"There are already concerns that banks in many parts of the world will choose to be more selective over whom they lend to, which in turn could have negative implications for the economy."
Investors were also likely cautious ahead of big tech earnings this week from the likes of Google parent Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN).
On home shores, figures released earlier by the Office for National Statistics showed that government borrowing continued to rise in March, partly due to the energy support scheme.
Public sector net borrowing came in at £21.5bn, slightly above expectations of £21.3bn and up £16.3bn on March 2022. It also marked the second-highest borrowing figure since monthly records began in 1993.
Meanwhile, borrowing for the financial year ending 31 March was estimated at £139.2bn - up £18.1bn on the previous year and the fourth highest since records began. The figure represents 5.5% of GDP.
Chancellor Jeremy Hunt said: "These numbers reflect the inevitable consequences of borrowing eye-watering sums to help families and businesses through a pandemic and Putin's energy crisis."
"We were right to do so because we have managed to keep unemployment at a near-record low and provided the average family more than £3,000 in cost of living support this year and last."
"We stepped up to support the British economy in the face of two global shocks, but we cannot borrow forever. We now have a clear plan to get debt falling which will reduce the financial pressure we pass onto our children and grandchildren."
Elsewhere, figures from retail consultancy Kantar showed that grocery inflation eased marginally in April but remained close to record highs.
Grocery price inflation was 17.3% in the four weeks to 16 April, a marginal improvement on the previous four weeks, when it hit an all-time high of 17.5%.
However, Kantar said it did not believe grocery price inflation - which has now been in double digits for ten months in a row - had peaked.
In equity markets, miners were among the worst performers, with Rio Tinto (LON:RIO), Glencore (LON:GLEN) and Anglo American (LON:AAL) all down.
Banks were also weaker after the First Republic results, with Standard Chartered (LON:STAN), NatWest (LON:NWG), HSBC (LON:HSBA) and Lloyds (LON:LLOY) on the back foot.
Primark owner Associated British Foods (LON:ABF) slumped after it reported lower interim profits as the clothing retailer and foods group battled inflationary headwinds and lower consumer spending amid the cost-of-living crisis. It posted adjusted operating profit of £684m, down 3%, for the 24 weeks to March 4. Primark profits fell to £351m, compared with £414m a year earlier.
Builders' merchant Travis Perkins (LON:TPK) was down as it held annual guidance despite a tough first quarter as the house building market stalled and property renovation and maintenance was deferred.
On the upside, Premier Inn owner Whitbread (LON:WTB) surged after saying that full-year earnings had soared above pre-pandemic levels on the back of strong demand for hotel rooms after the lifting of COVID-19 travel restrictions and unveiled a £300m share buyback.
The company, which also owns the Beefeater steakhouse chain, reported pre-tax profit of £375m, up from £58m a year ago and £218m in 2020 before the pandemic shut down the leisure and hospitality sectors.
Watches Of Switzerland (LON:WOSG) shot higher after markets blog Betaville said the company was at the centre of takeover speculation.
Eurowag (LON:WPS) gained after a well-received first-quarter trading update.