The blue-chip FTSE 100 <.FTSE> index was down 0.5 percent at 7,114.36 points by the close, bucking a broadly positive trend on European markets, while UK mid-caps <.FTMC> gained 0.6 percent.

May's surprise decision to hold an early election on June 8 sent sterling to its highest level since early October on hopes that a stronger majority for May, who leads the opposition Labour party by 21 points in opinion polls, will deliver a more orderly exit from the European Union. Parliament approved the election on Wednesday.

Sterling's rise, however, weighed on the FTSE 100's predominantly dollar-earning constituents, which have enjoyed a rally since the June referendum in which Britain voted to leave the EU.

Heavyweight oil companies Royal Dutch Shell and BP (>> BP plc) fell, down 2.2 percent and 1.1 percent respectively, as did precious metals miners Fresnillo (>> Fresnillo Plc) and Randgold Resources (>> Randgold Resources Limited), both down nearly 3 percent.

Luxury goods company Burberry (>> Burberry Group plc) was the biggest faller, dropping almost 8 percent, registering its worst daily performance since October 2015 after reporting a slight slowdown in its fourth-quarter comparable sales growth rate.

A slight slowdown in fourth-quarter like-for-like retail from the third quarter may give the market pause for thought, analysts at Liberum said in a note.

"News of a snap UK election has seen a strong rally in GBP. Should this continue towards polling day, Burberry's own FX-driven rally could disintegrate. We urge investors to take profits and sell from a position of relative strength," they added.

Companies with a more domestic focus, however, such as grocer Sainsbury (>> J Sainsbury plc), budget airline easyJet (>> easyJet plc) and Royal Bank of Scotland (>> Royal Bank of Scotland Group plc), were among the biggest gainers, all up by about 5 percent.

"The interesting second-order effect from the sterling move is the inflation story because that's been a big concern, particularly on the consumer-facing stocks ... (because) of what it does to their input costs," said Peel Hunt strategist Ian Williams.

"Historically, the sectors that do relatively well when sterling is rising tend to be ... the more domestic-focused ones; so real estate, retail."

Britain's FTSE 250, constituents of which have greater exposure to the UK economy, recovered some of the previous session's losses and held close to record highs.

“The mid and small-caps were among the hardest hit after Brexit. If we saw the pound strengthening and the UK consumer continuing to be resilient, that would really benefit small and mid-caps," said Henderson UK equity income and growth manager Laura Foll, adding that Henderson is overweight on mid-caps.

Defence stock Cobham (>> Cobham plc) slumped 8.7 percent after 683 million new shares were added to trading in its rights issue.

(Reporting by Kit Rees, additional reporting by Helen Reid; Editing by Mark Heinrich and David Goodman)

By Kit Rees