The FTSE 100 share index was down 2.18 per cent this morning taking it to its lowest level since December 2016.
The tumble into the red comes as fears of an impending trade war between China and the US following the arrest of Meng Wanzhou, a senior Chinese executive of phone giant Huawei.
The telecoms boss was arrested in Vancouver, Canada, on suspicion of trying to evade trade sanctions against Iran.
At the same time, the UK is in the midst of uncertainty over Britain's exit from the EU as Prime Minister Theresa May's deal is expected to be voted down in Parliament next week.
Melrose Industries, Antofagasta and Prudential were among the biggest casualties in the ensuing stock market fallout, with each of their shares shedding over 6 per cent.
Sterling was trading flat against both the US dollar and euro at 1.274 and 1.123 respectively as Brexit fears left the British currency in a slump.
"China has, obviously, been quick to criticise the arrest while Huawei is demanding her release," said Connor Campbell of SpreadEx.
"It is yet another huge blow to what was already looking like a fragile and inchoate ceasefire, and has sent the markets into another value-eroding funk."
Mrs May faces the potentially embarrassing defeat on Tuesday when MPs are expected to overwhelming vote down her trade deal with the EU.
At least three Cabinet ministers have begged her to postpone the vote but the PM told the BBC today that she has no intention of changing her plans.
"[The FTSE100 is] unlikely to pick up significantly until there’s greater clarity on the UK’s withdrawal from the EU, meanwhile US trade policy also continues to undermine confidence in global markets," said Laith Khalaf, senior analyst at Hargreaves Lansdown.
"Investors should therefore make sure they have a good spread of investments, including within the UK, so their portfolio is in good shape to deal with any outcome Brexit, or President Trump, may throw at them."
Last month, we reported how the FST100 index closed at a record high as share prices were boosted by the pound's fall in value.
Sterling took a hit after the Bank of England announced the first interest rate increase in 10 years.
But only a month before that, the share index fell by 1.9 per cent following disappointing earnings on Wall Street.
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