The FTSE 100 (^FTSE) closed 0.7% lower on Wednesday amid news that the UK economy is estimated to have shrunk by 1.6% in the first quarter of 2021.
This comes even as England’s victory over Germany in the UEFA Euro 2020 on Tuesday night was expected to boost investor sentiment.
England won 2-0 and will now head to the quarterfinals where it will play either Ukraine or Sweden.
Official figures show Britain’s economy suffered a bigger hit than first thought between January and March as the coronavirus lockdown took its toll and households saved at record levels.
This was below the Office for National Statistics' earlier estimate of a 1.5% decline.
The level of GDP is now 8.8% below where it was pre-pandemic in the last quarter of 2019, revised from a first estimate of 8.7% below.
The largest contributors to this fall were from the education, wholesale and retail trade, and accommodation and food services industries.
Data also showed the pandemic was responsible for a 4.6% fall in household consumption over the quarter.
Dixons Carphone (DC.L) surged 5% after reporting a 34% rise in profits and having fared far better over the pandemic than a lot of other retailers.
"FTSE 100 resisted the ‘Coming Home’ euphoria after England’s win over Germany, instead focusing on more routine issues such as Friday’s US jobs data," said a Proactive Investors report.
Markets will look to gauge whether the US Federal Reserve will be forced to consider tightening monetary policy sooner than planned.
Earlier European stocks had rallied on news that eurozone economic sentiment was at a 21-year high in June as ease of lockdown restrictions boosted optimism, the European Commission revealed.
The FT reported that Deutsche Bank (DBK.DE) will be unable to sponsor initial public offerings in Hong Kong from July after it failed to replace two regulated staff on time. This will impact plans to relaunch its Asia equities business.
Shares in the investment bank were down 0.7%.
Across the Atlantic, US stocks were trading nearly flat.
“The stock markets are unlikely to see large fluctuations as investors await the jobs report on Friday, which could shed some light on the economy's future outlook and the direction that monetary policy can take,” said Naeem Aslam, chief market analyst at Ava Trade.
Nigel Green, CEO of financial advisory organisation deVere Group said that after an impressive first half, the current bull run in stock markets is likely to continue for the second half of 2021, but warned "there are also headwinds on the horizon."
“The continuing robust economic growth in major economies, strong corporate earnings, ultra-low interest rates, and a sleeping bond market, will all mean that investors looking for yield will keep piling into equities, topping up their portfolios to build wealth."
Oil prices reversed earlier losses, ticking up ahead of the OPEC+ meeting set to take place on Thursday. The meeting will provide traders with hints about the future direction of oil supply.