STERLING fell to a one-week low and the FTSE 100 logged its second straight day of losses after inflation data showed consumer prices dodging the effects of a weaker pound in August.
The pound dropped 1.2 per cent to 1.317 against the US dollar, marking its lowest level since September 1.
Against the euro, sterling was trading 1.2 per cent lower at 1.171.
Meanwhile, the FTSE 100 closed lower by 0.5 per cent or 35.27 points, to 6665.63 points, as energy and mining stocks weighed down the index.
The Consumer Price Index (CPI) measure of inflation came in at 0.6 per cent in the year to August, in line with July, but below consensus estimates of 0.7 per cent.
The Office for National Statistics explained that rising food prices and airfares, as well as a slower-than-expected drop in fuel prices helped support the CPI reading. But that was offset by falling hotel, wine and clothing prices.
Alan Clarke, head of European fixed income strategy at Scotiabank, said: "I think today's reading is a lesson that patience is a virtue.
"It is only two months since the Brexit vote. It takes much longer than that for the impact of currency weakness to feed through to end customer prices."
Across Europe, the German Dax closed 0.4 per cent lower while the French Cac 40 dropped by 1.2 per cent.
In oil markets, Brent crude prices took a hit after the International Energy Agency (IEA) reported that demand for oil was slowing at a faster pace than expected.
Brent prices dropped as much as 2.3 per cent to around 47.21 US dollars per barrel.
The IEA report also hit the share prices of UK-listed miners and energy companies. Anglo American was the worst performing stock on the FTSE 100 down 4.3 per cent or 35.7p to 783.8p.
BHP Billiton was down 22.9p at 968.1p, Glencore dropped 3.8p to 177p, and BP fell 8.2p to 420.6p.
On the second tier stock index, JD Sports topped the FTSE 250 after reporting record half-year profits, announcing plans to set up shop in Australia, and vowing to press ahead with European expansion despite the Brexit vote.
Pre-tax profit rocketed 66 per cent to £77.4 million, driven by 10 per cent like-for-like sales growth.
JD Sports closed higher by five per cent or 67p to 1400p.
Esure shares rose 5.4p to 292.6p after the motor insurer confirmed plans to spin off its Gocompare price comparison site in the fourth quarter and line it up for a stock market listing worth around £474m.
Ocado Group was the biggest loser on the FTSE 250, with shares slumping 13.7 per cent or 44p to 278p.
While the grocer reported an 18.9 per cent rise in weekly orders in the 12 weeks to August 7 compared to the same period last year, investors zeroed in on comments from chief executive Tim Steiner regarding the state of the food retail market.
Mr Steiner said the market remains "very competitive" and that sustained margin pressure was unlikely to change in the short term.
The biggest risers on the FTSE 100 were Carnival up 81p to 3453p, London Stock Exchange Group up 34p to 2697, Worldpay Group up 3.6p to 291.7, and Coca-Cola HBC AG up 20p to 1649p.
The biggest losers on the FTSE 100 were Anglo American down 35.7p to 783.8p, British Land Company down 17.5p to 628.5p, Associated British Foods down 75p to 2740p, and Prudential down 34.5p to 1333.5p.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here