The blue-chip FTSE 100 fell 0.8%, with banks <.FTNMX8350>, mining companies <.FTNMX1770> and energy stocks <.FTNMX0530> leading the declines.
Rolls-Royce slipped 1.2% to a more than three-week low after sinking to a first-half underlying loss before tax of 3.2 billion pounds ($4.2 billion). The wider aero and defence index <.FTNMX2710> lost 0.4%.
The Fed rolled out an aggressive new strategy to restore the United States to full employment and lift inflation back to healthier levels in a world where weak inflation, low interest rates, and slow growth appear here to stay.
"Beyond that the speech was pretty surprise free, Powell saving plenty for September's official Fed meeting. And while this didn't do anything for the wider markets, the US indices celebrated his statement," said Connor Campbell, financial analyst at SpreadEx.
Trillions of dollars in stimulus has sent global equity benchmarks back to their pre-pandemic highs, but the UK's FTSE 100 is still about 21% below that level as the economy struggles to recover from a record crash in the second quarter.
Data on Thursday showed British car production rose sharply in July but is still well below last year's level, while another set of figures showed firms in the services industry cut jobs rapidly in the three months to August to ride out the pandemic.
The mid-cap FTSE 250 edged 0.1% lower but most of its declines were contained as specialist mortgage lender OneSavings Bank surged 15.7% on reporting a 2% rise in its underlying net loan book.
Hays Plc, one of the world's biggest recruitment agencies fell 0.4% as it posted a 12% fall in annual net fees, while advertising company WPP rose 6.5% as it resumed its dividend after beating dire forecasts for second-quarter trading.
(Reporting by Sagarika Jaisinghani and Shreyashi Sanyal in Bengaluru; additional reporting by Sinead Carew in New York; editing by Uttaresh.V and Angus MacSwan)
By Sagarika Jaisinghani and Shreyashi Sanyal
