The blue-chip FTSE 100 ended down 1.4%, with all sectors trading in the red. The index fell 2.6% for the week.

Major insurers Prudential and M&G PLC weighed as Britain's markets watchdog said it was proposing to extend temporary relief measures to help insurance customers facing difficulties due to the coronavirus pandemic until the end of October.

The mid-cap FTSE 250 shed 1.3%, and edged lower for the week.

Sentiment was hurt as Beijing ordered the United States to close its consulate in Chengdu, in retaliation for being told to shut its consulate in Houston earlier this week.

"The big question remains: for how long can the bulls hold on to the driver's seat," said Charalambos Pissouros, market analyst at JFD Group.

"Further escalation in U.S.-China tensions and a second round of lockdown measures may force more market participants to abandon equities and other risky assets."

The FTSE 100 has struggled in July to build on a three-month rally as hopes for a stimulus-led economic rebound were dented by surging global COVID-19 cases and relatively bleak corporate forecasts.

Ladbrokes owner GVC Holdings underperformed its peers on the FTSE 100 for the week as British tax authorities expanded an investigation into the gambling company's former online business in Turkey.

Gold miner Polymetal outperformed its blue-chip peers for the week after clocking higher quarterly production, while also benefiting from higher bullion prices.

In Britain, retail sales jumped back almost to pre-coronavirus lockdown levels in June when non-essential stores in England reopened, but analysts warned that a greater shift toward online shopping might prevent a V-shaped recovery.

British Gas owner Centrica Plc surged more than 16% after it announced plans to sell its North American subsidiary Direct Energy for $3.63 billion.

(Reporting by Sagarika Jaisinghani in Bengaluru; editing by Uttaresh.V and Angus MacSwan)

By Sagarika Jaisinghani and Ambar Warrick