European markets tank on toxic mix of threats

European markets tanked today, driven by a toxic mix of mounting “stagflation” fears, looming rate hikes and soaring energy costs.

London was among the worst performers as investors mull whether the British economy could be barrelling toward a biting bout of “stagflation” that would squeeze businesses.

The capital’s premier index plummeted 1.28 per cent to 6,986.50 points during the first hour of trading.

Traders have been spooked by the UK economy seemingly spiralling toward a toxic combination of anaemic economic growth and rising prices, a similar scenario it faced in the late 1970s.

Day-ahead natural gas prices rose 30 per cent in just a day, while the RAC has warned petrol costs could reach an all-time high by Christmas.

An increase in energy and fuel prices squeezes businesses’ margins across the board as the resources are used by most sectors of the economy.

Russ Mould, investment director at AJ Bell, said: “A continuing surge in energy prices means the sceptre of inflation is looming large over the markets again with the FTSE 100 down more than 1 per cent in early trading.”

“Oil prices are camped above $80 per barrel after producers’ cartel OPEC failed to increase output and natural gas continues to touch record highs. The concern will be that rising prices will prove much stickier than hoped.”

Housebuilders and retailers nursed heavy losses during the morning session, with the former group weighed down by investors fleeing the sector after fresh data published today showed the UK construction industry is struggling to squeeze out growth amid widespread shortages.

Barratt Developments, Taylor Whimpey and Berkeley all slid more than 2.60 per cent. 

Retailers JD Sports, Next and Primark owner Association British Foods fell 4.35 per cent, 3.86 per cent and 3.2 per cent respectively.

Tesco was the shining light on London markets this morning, climbing 4.21 per cent after it published an extremely upbeat crop of half year results.

The pound pulled back sharply from the greenback, weakening 0.52 per cent to $1.3558.

Germany’s Dax 30 and the pan-European Stoxx 600 both dropped sharply, down 2.44 per cent and 2.14 per cent.

More to follow.