Nearly £50 billion was wiped off the FTSE 100 as the London market fell prey to a global stock sell-off sparked by fears that rising inflation could force central banks to hike interest rates.
London’s blue chip index ended the day down 2.6% or 193.58 points at 7,414.4 points – marking its lowest close since April 2017 – a decline mirrored by both the German Dax and French Cac 40 – which each dropped 2.3%.
The global equity sell-off has been building since last Friday when traders became spooked by the prospect of tighter monetary policy after the US posted strong average earnings data.
Connor Campbell, financial analyst at Spreadex, said: “The only hope for the markets at the moment is that investors suddenly decide that the sell-off has been a bit overdone – though in a way it is fitting, matching the astonishing, record-breaking recent rise of the global indices with an equally astounding, heart-stopping drop.
“Admittedly, the Bank of England could go some way to allaying investors’ fears of rising interest rates on Thursday, if (governor) Mark Carney issues a more dovish statement than forecast.”
Away from the top tier, the FTSE 250 Index suffered a drop of more than 2.1% or 427.93 points to 19,262.56 points.
On the currency markets, the pound was flat at 1.395 against the US dollar and was 0.1% lower versus the euro at 1.127.
Brent crude prices were bucking the market trend, trading around 0.3% higher at 67 US dollars per barrel.
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David Madden, a market analyst at CMC Markets UK, said: “The volatility in the US dollar is impacting the oil market, but while OPEC and the US play back and forth in terms of curtailed supply and excess supply the energy market may hang around these levels.”
In blue chip stocks, Tesco and EasyJet were the only two to end the day in positive territory.
The grocer rose 1.15p to 199.9p after Kantar Worldpanel data showed that Tesco remained the fastest growing of the big four, with sales up by 2.6%, although its market share fell by 0.3 percentage points to 27.8%.
Easyjet, meanwhile, eked out a 1.5p increase to 1,643p as the low cost airline reported an 8.7% jump in passenger numbers in January after flying 5.1 million customers.
BP shares fell 7.05p to 475p as investors focused disappointing fourth quarter results, which showed a replacement cost (RC) loss for the fourth quarter at 583 million dollars (£417 million), sinking from a 72 million dollars (£51.5 million) profit during 2016.
Payments linked to the Deepwater Horizon oil spill hit 300 million dollars (£214.6 million) over the period, pushing the total bill for 2017 to 5.2 billion dollars (£3.7 billion).
Babcock International dropped 26.4p to 626.2p as the defence supplier cautioned over its full-year sales, amid ongoing tough trading in the oil and gas sector and a slowdown in the market for defence contracts.
Ocado tumbled 16p to 476.5p amid news that the online grocer slumped to a full year pre-tax loss of £500,000, while it warned that earnings will be knocked by the cost of developing its new warehouses and IT systems.
The only risers on the FTSE 100 were Tesco up 1.15p at 199.9p, and Easyjet up 1.5p at 1,643p.
The biggest fallers on the FTSE 100 were Standard Life Aberdeen down 21.3p to 396p, Schroders down 184p to 3,451p, Scottish Mortgage Investment Trust down 22p at 422.2p, and Mediclinic International down 27.8p to 556.6p.