Wall Street started the day in positive territory as tech stocks rebounded following days of selling, while European markets headed lower.
In London, the FTSE 100 (^FTSE) had a bit of a rollercoaster session during the day, starting on the back foot, recovering around noon, and then dipping again.
It finished 1% as the UK government borrowed more than expected last month due to surging inflation.
Data released by the Office for National Statistics (ONS) showed that chancellor Rishi Sunak borrowed another £14bn ($17bn) in May, which was £2bn higher than City economists had forecast.
Debt interest payments reached £7.6bn, thanks to higher interest rates and inflation, the highest for any May on record.
May’s borrowing lifted the national debt, excluding public sector banks, to £2.36tn, or around 95.8% of GDP.
“Rising inflation and increasing debt interest costs pose a challenge for the public finances, as they do for family budgets,” Sunak said in a statement.
“That is why we are taking a balanced approach – using our fiscal firepower to provide targeted help with the cost of living, while remaining on track to get debt down.
“Being responsible with the public finances now will mean future generations aren’t burdened with even higher debt repayments, and we can secure our economy for the long term.”
UK inflation hit a 40-year high of 9.1% last month.
Watch: How does inflation affect interest rates?
Raffi Boyadjian, Lead Investment Analyst at XM said: "Shares on Wall Street closed marginally lower on Wednesday as investors were unable to shake-off worries about the US economy contracting in the upcoming quarters. But neither was there any panic.
"If anything, [Fed chair Jerome] Powell’s acknowledgement of the real threat of a recession might have been taken as a sign by some traders that the Fed will adjust its policy if the data worsens."
It came as 229,000 people filed new unemployment claims last week in America, slightly more than expected, steading at near a five-month high.
The previous week’s total has been revised up, to 231,000, while the four-week average of claim (which are a proxy for layoffs) nudged up to its highest since late January.
While the labour market remains strong and unemployment low, there are some signs of softening, with several companies announcing layoffs in recent weeks.
Asian stocks ended higher on Thursday following the previous day's hefty losses, as some strength was seen in Chinese technology companies after the approval of a plan for more development in the fintech sector.
Richard Hunter, head of markets at Interactive Investor said: "Despite China’s struggles in coping with the latest round of COVID-19 concerns which has resulted in lockdowns in key areas, the authorities have reiterated their stance to intervene with monetary stimulus if necessary, contrary to the tightening being seen elsewhere.
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