BREXIT worries knocked the pound after the EU's chief negotiator Michel Barnier warned that a transition deal was "not a given" as the two sides still face "substantial" disagreements.
The comments sent sterling down 0.9 per cent against the US dollar to around 1.378, and fell 0.7 per cent versus the euro to 1.127, after Mr Barnier reminded UK negotiators there was little time to lose.
"To be quite frank, if these disagreements persist, the transition is not a given. Time is short - very short - and we haven't a minute to lose if we want to succeed," Mr Barnier said.
Hamish Muress, a currency analyst at OFX, said: "It looks like it may be a torrid end to the week for sterling as it comes under renewed Brexit pressure.
"Over half of the gains that the pound made since the start of the year against the dollar have been wiped out.
"With Brexit once again moving back on to the markets' radar, risk of a sterling downturn has returned and even the Bank of England's aggressive policy outlook hasn't provided much support to the pound.
"It will be interesting to see how the markets respond to the EU summit towards the end of the month, and any news that leaks from it."
The pound was also hit by a string of lacklustre economic data from the Office for National Statistics (ONS), which pointed to a widening UK trade deficit, weak industrial production and another drop in construction output.
The FTSE 100 dropped nearly 1.1 per cent, falling 78.26 points to 7,092.43, as a global equity sell-off sparked by fears that rising inflation will spark interest rate hikes continued.
European peers fared worse, with the French Cac 40 down 1.4 per cent and the German Dax lower by nearly 1.3 per cent.
In oil markets, Brent crude prices slipped 1.3 per cent to $63.39 per barrel - its lowest level since mid-December - as investors continued to worry about oversupply after US data showed higher output stateside.
In UK stocks, Direct Line rose 10p to 378.5p after announcing full-year results would come in ahead of expectations thanks to good results in motor and commercial and lower than expected weather-related claims.
Shares in Royal Bank of Scotland (RBS) slumped 9.1p to 274.5p. The bank's now-defunct Global Restructuring Group was back in the spotlight as the Financial Conduct Authority (FCA) said it was "highly unlikely" that a report into RBS's mistreatment of small businesses will be published before next Friday's deadline imposed by MPs, but it has agreed to send them a copy.
Shares in Trinity Mirror jumped 6.7p to 76.5p after the publisher struck a £126.7 million deal to buy a string of titles from Richard Desmond's media empire, including the Daily Express, the Daily Star and OK! magazine.
Metro Bank rose 38p to 3,488p on news that it would create 900 new jobs this year as it bulks up its apprenticeship scheme and takes its total staff roster to nearly 4,000.
The biggest risers on the FTSE 100 were Direct Line Insurance up 10p to 378.5p, Admiral Group up 33p to 1,852.5p, Paddy Power Betfair up 125p to 8,150p, and Taylor Wimpey up 2.45p to 184.4p.
The biggest fallers were Johnson Mattey down 141p to 3,110p, Pearson down 22.2p to 658.8p, Royal Bank of Scotland down 9.1p to 274.5p, and NMC Health down 100p to 3,110p.
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