Shares in banks and house builders have tumbled after support for Prime Minister Theresa May's Brexit deal appeared to unravel this morning, as a series of ministers resigned from the cabinet.
The FTSE 100 dipped eight points to 7,026, saved from steeper losses by the pound's slump, down 1.6% against the dollar at $1.278, which boosted the value of overseas earnings.
Retailers who earn the bulk of their revenues from the UK domestic economy were also hit hard. Marks and Spencer (MKS) fell 6.1% to 285.7p, Next (NXT) dropped 5.2% to £50.90 and Tesco (TSCO) fell 3.6% to 204.8p.
'The market has taken a big red pen to stocks which are heavily exposed to the UK economy like the banks, retailers and housebuilders,' said Laith Khalaf, senior analyst at Hargreaves Lansdown.
'These sectors were already under pressure, but the potential for an orderly Brexit to unravel in the next few days is causing further distress to be manifested in share prices.'
Helal Miah, investment reserach analyst at The Share Centre said fears of lower consumer confidence, 'potentially resulting in fewer mortgages and loans being taken out' were knocking shares in banks.
'The retail stocks have also been punished, as it is deemed that consumers may spend even less on the already troubled high street.'
The FTSE 250, whose companies are more exposed to the UK domestic economy than their blue-chip peers, fell 1.1%.
Bovis (BVS) was the biggest faller, down 8.2% at 955p, as mid-cap house builders took a hammering. Countryside Properties (CSPC) fell 6.2% to 292.2p and Crest Nicholson (CRST) was down 5.3% at 227.8p.
Capita (CPI) fell 7.8% to 116p, also weighed down by reports the outsourcing giant would lose an NHS contract after failing to send out letters over cervical cancer tests.
Among small-cap stocks, supplier fears over department store chain Debenhams (DEB) sent the shares 9.2% lower to 4.8p. The shares tumbled 21% yesterday.
AO World (AO) was down 7.6% amid the Brexit gloom for UK retailers.