The FTSE 100 shed 1.1%, while the FTSE 250 <.FTMC> was roughly flat.
Companies that book a major chunk of their earnings in dollars, including Diageo and Unilever dropped after Merkel said a solution to the Irish border problem could be found before Britain leaves the European Union on Oct. 31. Her comments lifted sterling to a three-week high against the dollar..
BAT gave up 1.5%, hit by the gains in sterling as well as a probe by a U.S. House panel into e-cigarette manufacturers over the health impact of their products. Imperial Brands lost 2.7%, as the stock also traded ex-dividend.
UAE-based healthcare provider NMC Health was the standout performer, surging more than 18.5% for its best day ever, after sources told Reuters that two groups, including one backed by China's Fosun, were competing to buy a 40% stake in the company worth up to $1.9 billion.
The company also posted half-year results and announced plans to buy back up to $200 mln worth of shares.
Losses on the main index were spread across sectors after Fed minutes overnight showed policymakers were deeply divided on an interest rate cut, at a time when many investors are looking to central banks to help cushion blows from a bruising U.S.-China trade dispute.
"It would appear that dealers were too bullish going into the update, and now that the Fed's opinion about the state of the U.S. economy is known, traders are trimming their equity positions," CMC Markets analyst David Madden said.
Online grocer Ocado dropped 3.1% after it said there had been a small fire on Wednesday evening at its customer fulfilment centre in Erith, which was later extinguished.
The more domestically-focussed mid-cap index was supported by the pound and an 11.6% surge in casino and gaming operator Rank Group and a 9.3% jump in Premier Oil after their respective results.
However, infrastructure group John Laing Group lost 5.7% after its half-year results, while Ukraine-focused iron ore pellet producer Ferrexpo fell 6.1% after brokerage Liberum cut its rating and almost halved its price target on the stock.
(Reporting by Shashwat Awasthi in Bengaluru; editing by Arun Koyyur and Kirsten Donovan)
By Shashwat Awasthi and Indranil Sarkar