The blue-chip FTSE 100 fell 1.2% with financials weighing the most after a run of strong gains.
The banking sub-index rose more than 12% this month on support from higher yields, as investors expect lenders to benefit from rising interest rates this year.
"Looking at the way the FTSE 100 and the big banking names have performed year-to-date, this drop is potential profit taking ahead of the weekend and the Bank of England meeting due next week where expectations are for a 25 bps rate hike," said Michael Hewson, an analyst at CMC Markets UK.
But heavyweight mining stocks sank as the prospect of rising interest rates weighed on metal prices, while energy companies also retreated after recent gains.
Energy stocks were up 16.5% this month, their best since November 2020 as crude prices hit a seven-year high. [O/R]
"As long as oil and gas prices remain at such levels, we are confident that the FTSE 100 will hit the 7,800 mark mid-year," Hewson added.
The domestically focused mid-cap index fell 1.0%, and has lost 7.8% over the month, marking its worst month since March 2020. Concerns that rate increases by the Bank of England could slow down a British economic recovery have walloped locally-exposed stocks in recent weeks.
Meanwhile, data showed that the number of shuttered shops in Britain edged lower for the first time in four years in the final quarter of 2021, which supported retail stocks.
Among other stocks, British outsourcer Capita dropped 1.8% after it said it would sell its IT services business Trustmarque to private equity firm One Equity Partners for 111 million pounds ($148.64 million).
(Reporting by Shashank Nayar in Bengaluru; Editing by Shailesh Kuber and Jane Merriman)
By Shashank Nayar and Ambar Warrick