Investors will also be reluctant to buy before the new Government's first Budget on 2 July. Speculation that the budget will scrap a tax break for pension funds sent stocks into a tailspin last week.
"I expect further weakness," said Mark Gardner, a fund advisor at Julius Bear Investment. "People think there will be a further tightening in interest rates, adding to worries about the Budget."
The Budget will set out the Government's tax and spending plans and show whether it intends to dampen inflation through higher taxes, rather than just rate hikes.
"Pre-budget nerves will continue to be a focus of attention," said Scott Evans, an equity strategist at UBS.
Utilities, which are expected to be subject to the Government's proposed "windfall tax" on the "excess profits" of former state-owned companies, could be among the most actively traded this week.
Wessex Water, the Bristol-based water company, is the last major utility scheduled to release earnings before the Budget, with a report on full- year profits due on Wednesday.
Mr Evans said he expected utilities that continue to increase dividends, in the face of Government criticism that they should invest in infrastructure, to be hit harder by the proposed one-time windfall tax.
"The government is going to turn a deaf ear towards water companies that continue to increase their dividends. The question is what are they [Wessex] going to do with their dividend," said Mr Evans.
Retailers could also be the focus of attention as Asda Group, the supermarket operator, and Great Universal Stores, the store and mail-order group - and the country's second-biggest general retailer - release earnings figures on Thursday.
The retail sector has been dogged by concern about higher interest rates, which tend to reduce consumer spending. The FT-SE Retailers sub-index, which includes Marks & Spencer and Boots, has dropped 4.9 per cent over the last five trading sessions.
Figures due out include UK gross domestic product on Friday. The report could ease fears that interest rates will have to be used to curb inflation in a growing economy.
Copyright: IOS & Bloomberg