Fears over fuel prices, interest rates and mortgage regulation conspired to take almost 1 per cent off the FTSE 100 Index.
Jasper Lawler, market analyst at CMC, said: “The FTSE 100 dropped out of the bottom of its recent price range which had been supported by 6,800, falling to its lowest level since April.”
The index tumbled 65.26 points to 6,777.85, while the second tier FTSE 250 slumped 311.14 points at 15,814.81.
Housebuilders led the declines after the double Mansion House hit from both Bank of England governor Mark Carney and Chancellor George Osborne.
Confidence in the housebuilding stocks was badly shaken by Carney’s rates message, with Persimmon off nearly 7 per cent or 91p lower at 1,211p and Barratt Developments down 23.3p or 6.3 per cent at 346.3p. Home improvement chains were also impacted as B&Q-owner Kingfisher fell nearly 4 per cent or 15.2p to 369p and Wickes firm Travis Perkins dipped 42p to 1,628p.
Elsewhere in the retail sector, Sports Direct International dropped nearly 5 per cent or 39p at 779p and Next eased 175p to 6,250p. The fear for investors is that higher interest rates will provide more stimulus for sterling at a time when many retailers are already complaining about its effect on overseas earnings. Aim-quoted Asos, which recently said profits would be lower than expected due to the pound’s strength, was more than 5 per cent lower at 2,919p.
Investors also dumped travel and airline stocks after oil prices surged to a nine-month high on fears that insurgent victories in Iraq could disrupt global oil supplies. British Airways owner IAG fell 12.2p to 379p and EasyJet dropped 44p to 1,457p. Holiday companies Tui Travel and Thomas Cook were down by 11.1p and 9.7p to 391.9p and 140p respectively.