The FTSE 100 closed flat on Tuesday, with gains from oil majors being offset by a tough session for retailers after Walmart on Monday rocked equities with a profit warning.
Adding to the already drab mood, the International Monetary Fund lowered its growth forecast.
The FTSE 100 inched down just 0.02 of a point to 7,306.28. The FTSE 250 index closed down 234.20 points, or 1.2%, at 19,568.79. The AIM All-Share index lost 3.62 points, 0.4%, at 898.52.
The Cboe UK 100 index inched up to 729.02. The Cboe 250 fell 1.3% to 17,039.69. The Cboe Small Companies was ended down 0.7% at 13,558.09.
In mainland Europe, the CAC 40 stock index in Paris closed down 0.4%, while the DAX 40 in Frankfurt ended 0.9% lower.
Stocks in New York were also in negative territory. The Dow Jones Industrial Average was 0.6% lower, the S&P 500 was 1.1% lower and the Nasdaq Composite slumped 1.7%.
Surging inflation and severe slowdowns in the US and China prompted the IMF to downgrade its outlook for the global economy this year and next, while warning Tuesday that the situation could get much worse.
In its latest World Economic Outlook, the International Monetary Fund cut the 2022 global GDP estimate to 3.2%, four-tenths of a point lower than the April forecast, and about half the rate seen last year.
The dollar was largely on the up as the Federal Reserve kicks off its two-day policy meeting, with an interest rate decision due on Wednesday.
The pound was quoted at $1.2021 at the time of the London equities close on Tuesday, down from $1.2041 on Monday.
The euro was priced at $1.0120, down sharply from $1.0215. Against the Japanese yen, the dollar was quoted at JP¥136.63, lower against JP¥136.71.
After a turbulent few weeks for market forecasts, the Federal Reserve is expected to raise US interest rates by just 75 basis points on Wednesday - a hefty hike by historic standards, but moderate compared to the full percentage point priced in just a few weeks ago.
The Federal Open Market Committee will conclude its two-day policy meeting on Wednesday and announce its decision at 1900 BST. This will be followed by a press conference with Fed Chair Jerome Powell at 1930 BST.
Brent oil was quoted at $105.24 a barrel late Tuesday, up from $104.78 at the equities close on Monday, and lifting shares in BP and Shell. The duo added 0.5% and 1.1%, respectively - helping London's flagship FTSE 100 index outperform continental counterparts.
The FTSE's outperformance was helped by a 3.3% rise for Compass and a 3.0% advance for Unilever.
Compass said the strong growth momentum seen throughout the first half of the year continued into the third quarter, with all three of its geographic regions operating above 2019 levels.
Compass raised its 2022 organic revenue growth guidance to around 35% from around 30%.
Dove soap and Ben & Jerry's ice cream owner Unilever said it delivered a first half performance that built on the momentum of 2021.
For the six months to June 30, revenue rose 15% to €29.62 billion from €25.79 billion a year prior.
Unilever said it generated underlying sales growth of 8.1% in the first half as it raised prices to counter rising costs and slumping volumes.
Looking ahead, it expects 2022 underlying sales growth to be above its previous 4.5% to 6.5% guidance range. It had previously forecast full-year underlying sales growth at the top end of a range of 4.5% to 6.5%.
Weighing on the FTSE 100, however, was an 8.0% share price decline for JD Sports. Elsewhere, Asos gave back 7.9%, AO World lost 8.4% and Made.com dropped 9.1%.
Retailers slumped on the back of a profit warning from New York-listed Walmart late Monday.
Walmart said its annual profit will be weaker than expected as rampant food inflation means consumers are doing less general merchandise spending, hitting margins as a result.
Operating income for the second quarter, which runs until Sunday, will decline 13% to 14%. For the full-year, it will slump 11% to 13%.
Walmart shares were 8.6% lower in New York.
Three trends are hitting Walmart, AJ Bell analyst Russ Mould commented. The retailer is turning to discounts to shift inventory, it is seeing inflation hit margins, and it is suffering as discretionary spend weakens.
‘And all three may prove just to be just as important on this side of the Atlantic, so anyone with shares in leading UK-based and UK-listed retailers has some research and some thinking to do, especially after a Wickes warning that the DIY boom may be cooling’ Mould explained.
Shares in Wickes ended 18% lower in London as it warned of ‘signs of softening’ in the DIY market.
Elsewhere in London, newspaper publisher Reach sank 26%.
The Daily Mirror, Daily Star and Daily Express owner warned ‘energy prices [are] fuelling all-time high newsprint cost; not forecasting any improvement during financial year 2022’.
In the six months ended June 26, pretax profit rose 25% to £32.0 million from £25.7 million a year ago. However, revenue shrank by 1.6% to £297.4 million from £302.3 million.
Gold stood at $1,717.77 an ounce late Tuesday, edging lower from $1,718.56 late Monday.
Prior to the Fed's interest rate decision, Wednesday's economic calendar has inflation data from Australia overnight, before consumer confidence readings for both Germany and France at 0700 BST and 0745 BST, respectively.
The local corporate calendar has half-year results from a now trimmed-down pharmaceutical firm GSK, Dunhill owner British American Tobacco, consumer goods firm Reckitt Benckiser and miner Rio Tinto.
A busy US corporate earnings calendar continues with second quarter numbers from Ford, Kraft Heinz and Facebook owner Meta Platforms on Wednesday. Microsoft and Google owner Alphabet report after the closing bell in New York later on Tuesday.
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