Banks pushed the FT-SE 100 lower after the Bank of England cut the economy's growth forecasts and said inflation would fall below its target.
The FT-SE 100 extended previous losses, dropping 97 points, or 1.8%, to 5,278 by 11.30a.m.
The central bank said in its latest inflation report: "The risks to growth remain weighted to the downside. Spare capacity is likely to persist over the forecast period, although its extent will depend on the strength of demand and the evolution of supply, both of which are uncertain."
Banks fell as their income, derived from loan fees and consumption, is directly linked to economic growth.
Lloyds Banking Group fell 3.1 pence, or 4.1%, to 72p, while Barclays Bank lost 3.4%, or 11.6p, to 322p.
"UK banks continue to face a number of challenges related in particular to their need to refinance substantial levels of maturing funding," the central bank said. "Credit conditions improved a touch, though less so than earlier in the year, while the stock of bank lending to companies fell further."
