Sharecast - The FTSE 100 was down 0.4% at 7,744.83.
Susannah Streeter, head of money and markets at Hargreaves Lansdown (LON:HRGV), said: "Investors are treading carefully ahead of the key US inflation report out tomorrow as economic data becomes king while markets assess what is next for interest rates.
"The Bank of England’s decision on Thursday is looming large, with another 0.25% hike expected, to squeeze more exuberance out of the economy and bring down still painful inflation."
Investors were mulling the latest data from Halifax, which showed that house prices fell in April after three consecutive months of growth.
On a month-on-month basis, prices were down 0.3% to £286,896 following a 0.8% increase in March. On an annual basis, prices were up just 0.1% in April, down from 1.6% growth a month earlier.
Kim Kinnaird, director of Halifax Mortgages, said house prices over recent months have largely mirrored the short-term volatility seen in borrowing costs.
"Alongside a market-wide uptick in mortgage approvals, these latest figures may indicate a more steady environment," she said.
"However, cost-of-living concerns remain real for many households, which will likely continue weigh on sentiment and activity. Combined with the impact of higher interest rates gradually feeding through to those re-mortgaging their current fixed-rate deals, we should expect some further downward pressure on house prices over course of this year."
Market participants were also digesting the latest BRC-KPMG monthly retail sales monitor, which showed that total sales rose 5.1% last month, unchanged on March. A year previously, sales had eased 0.3% in April.
On a like-for-like basis, sales jumped 5.2% against a 4.9% improvement a month earlier and a 1.7% decline in April 2022.
The data also showed a 10% increase in food sales in the three months to April, while non-food sales nudged 0.8% higher, both on an underlying basis.
In equity markets, DCC (LON:DCC) fell as it said that chief executive Donal Murphy will step back from his day-to-day responsibilities for the next few weeks to address a medical condition.
Victrex (LON:VCTX) also lost ground after its first-half revenues missed expectations.
Marshalls slid as the landscaping materials group cut annual guidance after like-for-like sales fell 14% in the first four months of the year due to a reduction in new house building and continued weakness in private housing maintenance activity.
Direct Line fell as the insurer said average renewal premiums rose in the first quarter but warned that rising claims in its motor segment will put pressure on earnings this year. Admiral was also lower.
Outside the FTSE 350, Purplebricks tanked after the estate agent said it no longer expects a return to cash generation in early FY24 and warned that any potential sale of the business would be expected to deliver returns to shareholders "materially below" the current share price.
Going the other way, JD Sports rallied after saying it had agreed to buy French sportswear retailer Courir in a €520m deal.
Travel stocks also gained, with Tui and Carnival (NYSE:CCL) both up on continued positive read-across from Norwegian Cruise Line results last week.
