Sharecast - At 0840 GMT, the FTSE 100 was down 0.6% at 7,551.41.
Sentiment took a hit after Bundesbank President Joachim Nagel said on Monday that it was too early to talk about rate cuts, while Austrian central bank governor Robert Holzmann said we shouldn’t count on rate cuts at all in 2024.
On home shores, figures released earlier by the Office for National Statistics showed that wage growth eased in the three months to November, while unemployment was unchanged.
Total pay including bonuses rose 6.5%, down from 7.2% in the previous three-month period and in line with consensus expectations.
Meanwhile, the unemployment rate was unchanged at 4.2% in the three months to November and the ONS estimated that the number of payrolled employees in December fell by 24,000 from a revised November figure to 30.2m.
The ONS data showed that the number of vacancies fell by 49,000 in the three months to December to 934,000. This marked the 18 consecutive decline and the longest run of falls ever recorded.
Susannah, Streeter, head of money and markets at Hargreaves Lansdown (LON:HRGV), said: "More cautious sentiment has descended as the glow of hope for early interest rate cuts fades, while the latest jobs data for the UK shows potentially fresh fragility for the economy.
"Wage growth came down more quickly than forecast, indicating that employers are more wary of succumbing to big pay demands given the uncertain climate. However, the labour market still remains quite tight, with the employment rate up slightly on the quarter.
"With unemployment steady, Bank of England policymakers are still expected to repeat the mantra that interest rates will have to stay elevated for an extended period of time. Robert Holzmann, who suggested current upwards price pressures could mean policymakers hold off rate cuts this year.
"The realisation that central banks could still be facing the foe of stubborn inflation has been dampening spirits, especially with the potential for geopolitical risk to widen."
In equity markets, Rightmove (LON:RMV) was knocked lower by a downgrade to ‘underweight’ from ‘neutral’ at JPMorgan (NYSE:JPM), while Rolls-Royce (LON:RR) was hit by a downgrade to ‘sell’ at Berenberg.
Moneysupermarket (LON:MONY) was also weaker after rating downgrades at Jefferies and Investec.
Trustpilot (LON:TRST) slumped after Berenberg sold just over 5.17m shares in the review website in a placing on behalf of shareholder Northzone.
On the upside, Ocado (LON:OCDO) surged after the online grocer forecast a return to positive earnings for the 2022/23 year as fourth-quarter revenues rose by almost 11%.
Experian (LON:EXPN) rallied as it narrowed its full-year targets to the upper end of guidance after a strong third quarter with revenue growth accelerating from the first half.
Vodafone (LON:VOD)gained after saying it has signed a 10-year strategic partnership with Microsoft (NASDAQ:MSFT) which will see the UK telecoms group invest $1.5bn over the next decade to transform its customer experience using generative artificial intelligence.
Qinetiq (LON:QQ) advanced as the defence and security firm backed its full-year expectations, hailed "excellent" order intake and announced plans to launch a share buyback of up to £100m.
Direct Line (LON:DLGD) was boosted by an upgrade to ‘buy’ at Berenberg.
Market Movers
FTSE 100 (UKX) 7,551.41 -0.57%
FTSE 250 (MCX) 19,146.49 -0.28%
techMARK (TASX) 4,290.34 0.04%
FTSE 100 - Risers
Ocado Group (OCDO) 651.60p 5.27%
Experian (EXPN) 3,196.00p 2.24%
Persimmon (LON:PSN) 1,467.00p 1.14%
Severn Trent (LON:SVT) 2,637.00p 1.03%
United Utilities Group (LON:UU.) 1,060.50p 0.90%
St James's Place (STJ) 633.40p 0.89%
Barratt Developments (LON:BDEV) 546.40p 0.77%
Vodafone Group (LON:VOD) 67.62p 0.68%
BAE Systems (LON:BAES) (BA.) 1,185.00p 0.59%
Pearson (LON:PSON) 985.00p 0.53%
FTSE 100 - Fallers
Rightmove (RMV) 539.80p -4.43%
AstraZeneca (NASDAQ:AZN) 10,602.00p -2.30%
Rolls-Royce Holdings (RR.) 293.40p -2.20%
Rentokil Initial (LON:RTO) 412.70p -1.64%
International Consolidated Airlines Group (LON:ICAG) SA (CDI) (IAG) 143.15p -1.62%
Frasers Group (LON:FRAS) 811.00p -1.34%
JD Sports Fashion (JD.) 111.85p -1.28%
Auto Trader Group (AUTO) 699.20p -1.19%
Flutter Entertainment (CDI) (FLTR) 12,995.00p -1.18%
B&M European Value Retail S.A. (DI) (BME) 546.60p -1.16%
FTSE 250 - Risers
QinetiQ Group (QQ.) 339.60p 6.73%
Harbour Energy (LON:HBR) 306.70p 3.41%
Target (NYSE:TGT) Healthcare Reit Ltd (THRL (LON:THRL)) 88.30p 3.03%
Direct Line Insurance Group (DLG) 173.10p 2.12%
Close Brothers Group (CBG) 644.50p 1.10%
Wood Group (John) (WG.) 167.20p 1.03%
Petershill Partners (PHLL) 162.00p 0.87%
Spirent Communications (LON:SPT) 116.80p 0.86%
Hochschild Mining (LON:HOCM) (HOC) 93.20p 0.76%
Hipgnosis Songs Fund Limited NPV (LON:SONG) 70.40p 0.72%
FTSE 250 - Fallers
Moneysupermarket.com Group (MONY) 255.20p -4.99%
Trustpilot Group (TRST) 160.00p -3.15%
TBC Bank Group (TBCG) 2,790.00p -2.45%
BlackRock (NYSE:BLK) Smaller Companies Trust (BRSC) 1,330.00p -2.35%
Drax Group (LON:DRX) 521.20p -2.21%
FDM Group (Holdings) (LON:FDM) 431.00p -2.16%
PZ Cussons (LON:PZC) 143.00p -2.05%
ITV (LON:ITV) 59.52p -1.91%
HGCapital Trust (HGT) 428.00p -1.83%
Murray International Trust (LON:MYI) 242.50p -1.62%