The FTSE 100 tumbled 175.69 points to 6947.99 on Tuesday, marking its largest single-day decline since February as mounting inflation concerns rattled global markets. The 2.47 per cent drop was led by British Airways owner IAG, which fell 7.4 per cent, alongside engineering firms Renishaw, Melrose and Rolls-Royce. European indices followed suit, with Germany's Dax closing down 1.8 per cent, France's CAC off 1.9 per cent, and the Stoxx 600 suffering its worst day of 2021.
Wall Street saw a sharp sell-off in tech stocks, with Apple, Facebook, Amazon and Tesla among the biggest losers in morning trading. The Dow Jones industrial average lost 600 points after breaching 35,000 for the first time on Monday. Half of the shares in the tech-heavy Nasdaq index have now fallen at least 10 per cent from their peaks, with Zoom down more than 50 per cent since October.
The global rout was fuelled by fears that central banks may be forced to abandon ultra-loose monetary policy as inflation pressures mount. Data from China showed producer prices rising at an annual rate of 6.8 per cent in April, the highest in three years, while consumer prices increased 0.9 per cent. Analysts warned that rising factory gate prices are a leading indicator of inflation.
Neil Wilson, chief market analyst at Markets.com, said: 'If you are looking for inflation signals, China's factory gate prices are a pretty good leading indicator. So today's report could be of concern.' Nick Hyett, equity analyst at Hargreaves Lansdown, added that higher inflation implies higher interest rates, which are particularly toxic for growth-focused tech stocks.
Investing magnate Stanley Druckenmiller criticised the US Federal Reserve for maintaining its $120bn-a-month bond-buying programme, arguing that monetary and fiscal policy are 'out of step with the economic circumstances'. He warned of risks to the dollar's reserve currency status and the potential for an asset bubble.
