Britain's blue chips ended Wednesday nearly 100 points down as investors got spooked at the prospect of rising interest rates.
The Bank of England's (BoE) November inflation report fuelled fears about a rate-rise coming as early as 2015 after years at rock-bottom.
When new governor Mark Carney unveiled the inflation report in August this year he laid out forward guidance, which stated interest rates would be maintained at 0.5% - at least while unemployment was above 7%.
But now the bank has brought forward the date it had earmarked for when unemployment falls below the targeted 7% threshold and said there is a 40% chance it could be by the final quarter of 2014 and a 60% probability of reaching it in 2015, meaning interest rates could rise much sooner than expected.
Carney said things were looking up.
"For the first time in a long time, you don’t have to be an optimist to see the glass is half-full,” he said.
FTSE100 closed around 97 points down, at 6,630 - its lowest close level for four weeks.
Sainsbury (LON:SBRY) was the biggest gainer, up 2.98%, following its half year numbers, while RSA Insurance (LON:RSA) was once again among the losers, still reeling from its two profit warnings and an investigation into its Irish business following the suspension of three top executives.
Tullow Oil (LON:TLW) drifted lower after another well off the coast of French Guiana failed to find any oil.
In small caps, Wessex Exploration (LON:WSX) and Northern Petroleum (LON:NOP), both tumbled on the news as they both hold small, but relatively important holdings given their size.
The two AIM quoted explorers share a 2.5% stake in the Shell-led venture, and since the discovery of oil in the Zaedyus well in 2010 the project has been a significant driver of the respective share prices – one way or another.
Other big movers in the small-cap space included Herencia Resources (LON:HER), up over 14%. It has attracted a Hong Kong-based investor to fund the progress of its Picachos and Paguanta projects in Chile.
Shining Capital Management is to acquire 400mln new Herencia shares at 0.62p each, providing £2.48mln in funding.
The price paid represents a 25% premium to the closing share price on the day before the investment was announced and is a 15% improvement on the volume average price over the past month and a half.
The new cash injection allows the group to cancel a drawdown facility it has with a fund operated by Lind Partners.
Elsewhere, other risers included Tertiary Minerals (LON:TYM), which gained 9.43% and Orosur Mining (LON:OMI), which added 5.62%.