Sterling and UK equity markets skidded lower after the Prime Minister warned that it was “very, very likely” that the UK will exit the EU without a trade deal.
Although Boris Johnson said he was still hopeful that progress could be made, traders were pessimistic.
The pound fell by nearly 1.2% before clawing back some ground after German and Irish ministers said a deal could still be made.
The pound decreased by 0.7% versus the US dollar at 1.320 and was down 0.45% against the euro at 1.089.
David Madden, market analyst at CMC Markets UK, said: “Sterling has tumbled to a one-month low as worries that trading between the UK and the EU will be done on Australian-style terms come January.
“Tensions between London and Brussels have been rising recently.
“Sterling is also suffering from the fact that today is Friday and some traders are worried about holding a position over the weekend in light of how things have been going lately.”
Typically, weakness in the pound would boost the FTSE 100, with London-based multinationals likely to benefit from the currency impact.
However, traders were negative about the impact of a no-deal scenario on firms, which could face millions of pounds’ worth of tariffs, dragging London’s markets into the red.
The FTSE 100 closed 53.01 points lower at 6,546.75 at the end of trading on Friday.
Elsewhere in Europe, the major markets also slumped as German sentiment was particularly hit by rising Covid-19 cases despite tightened restrictions.
The German Dax was 1.36% lower and the French Cac moved 0.76% lower.
Across the Atlantic, the Dow Jones dipped after Thursday’s disappointing jobs report and continued stalls over the proposed stimulus relief package.
Supermarket stocks such as Tesco and Sainsbury’s moved lower amid fears they will be expected to swallow some tariff impact or ask their customers to pay higher prices for food imported from the EU.
In company news, Rolls-Royce was the FTSE’s worst performer on Friday after it said it expects to spend more cash than previously thought as the second surge of coronavirus kept planes on the tarmac and delayed any recovery.
Shares closed 10p lower at 117p after the engineering firm said cash flow would be negative to the tune of £4.2 billion this year.
Elsewhere, shares in FTSE-250 smart meter company Calisen soared after agreeing to a £1.4 billion takeover deal.
It closed 51p higher at 257.6p after its board supported the move by infrastructure funds led by BlackRock.
Eyewear designer and manufacturer Inspecs saw shares rise after it said directors in the company bought £1.5 million in shares.
It closed 13p higher at 278p on Friday.
The price of oil dropped into the red after profit taking pushed the energy market lower following Thursday’s nine-month high.
The price of a barrel of Brent crude oil decreased by 1.68% to 49.89 US dollars.
The biggest risers on the FTSE 100 were Spirax-Sarco, up 240p at 11,485p, Burberry, up 33.5p at 1,815p, Bunzl, up 42p at 2,462p, and Scottish Mortgage Investment Trust, up 18p at 1,145p.
The biggest fallers on the FTSE 100 were Rolls-Royce, down 10p at 117p, Natwest, down 10.75p, Lloyds, down 1.6p at 34.07p, and JD Sports, down 34.4p at 751.8p.