After a three-day surge driven by government and central bank measures to lessen the blow from the coronavirus crisis, the blue-chip FTSE 100 fell by 5.3%.
Losses accelerated after Johnson's announcement that he is self-isolating in London, but he would still lead the British government's response to the pandemic.
"It's a gut reaction by markets which is not justified by what's happened," Rupert Thompson, chief investment officer at Kingswood said of the FTSE's fall.
The World Health Organization said the coronavirus has infected more than half a million people and killed 20,000 globally, while Britain has recorded more than 14,500 cases and 759 deaths.
Businesses also took a hit, with fashion chain Next slumping 11% as it shut its online business, cutting off its remaining source of revenue.
Carnival Corp slid 21%, with traders pointing to news that the $2 trillion U.S. aid package may exclude cruise liners not registered in the United States.
Global stock markets had some respite this week as central banks and governments ramped up stimulus measures. The British government said on Thursday it would pay a taxable grant to self-employed people affected by the pandemic.
"You've got two big forces in opposing direction in play - you've got massive monetary and fiscal stimulus trying to offset a massive fall in activity - which one wins out is hard to tell," said Thompson.
Homebuilders Taylor Wimpey and Persimmon dropped 9% and 11% respectively after the government urged people to avoid moving house during the outbreak.
Shares in one of Britain's largest housebuilders, Redrow, fell 8.6% after the company said it was in talks with six banks to secure additional credit and had applied to the Bank of England's scheme for financing support.
The midcap index fell 4%, with doorstep lender Provident Financial sliding 13% after it stopped face-to-face visits due to the coronavirus lockdown and withdrew its 2020 targets.
Royal Mail fell 18% after saying it had delayed its turnaround plans and had also cancelled its dividend and suspended its forecasts for next year.
(Reporting by Sruthi Shankar and Devik Jain in Bengaluru; Editing by Shounak Dasgupta, Anil D'Silva and Alexander Smith)
By Sruthi Shankar and Devik Jain