The benchmark FTSE 100 index ended 0.6% lower, while the domestically focussed mid-cap index fell 0.9%.
Bank of England (BoE) Governor Andrew Bailey said on Wednesday the economic impact from COVID-19 remained strong, while noting inflationary pressure from supply chain difficulties and increased demand for consumer goods.
Banks slipped amid uncertainty about whether the BoE will hike interest rates this month. [BOEWATCH]
"Raising interest rates at a time when the economy is expected to slow and see restrictions, maybe potentially even lockdowns, is just going to compound the economic pain," said Oanda analyst Craig Erlam.
"What we're seeing with financials is a reflection of the fact that it (Omicron) makes the central bank's job of tightening monetary policy a bit more challenging."
Prime Minister Boris Johnson issued a "call to get jabs in arms" on Wednesday as Britain stepped up its COVID-19 booster programme to fend off the Omicron variant after another 10 cases of the new strain were identified, bringing the total to 32.
Postal and delivery firm Royal Mail fell 4.6% and was among the worst performers on the blue-chip FTSE 100 as it traded ex-dividend.
Johnson Matthey and Darktrace dropped 2.2% and 8.7% respectively after index manager FTSE Russell confirmed the companies were set to leave the FTSE 100.
Halfords Group rose 6.5% after saying it would buy Axle Group for 62 million pounds ($83 million) as the cycle retailer shifts focus to its motoring services business.
Title: UK Shares remain volatile on Omicron news, https://tmsnrt.rs/3xJCblH
(Reporting by Bansari Mayur Kamdar and Amal S in Bengaluru; Editing by Uttaresh.V and Mark Potter)
By Bansari Mayur Kamdar