he FTSE 100 slipped back on Tuesday as higher-than-expected US inflation figures shook the markets.
European markets started the day’s trading in a broadly positive position but were dragged back amid fears that continued core inflation would result in a lengthy downturn in consumer spending.
FTSE retail stocks also drifted after figures from Kantar showed food inflation of 12.4% for August.
London’s top flight ended the day down 87.17 points, or 1.17%, at 7,385.86.
Michael Hewson, chief market analyst at CMC Markets UK, said: “This week’s initial US dollar weakness was being fed by a belief that perhaps the peak for inflation is now behind us.
“That may well be true, and today’s US CPI (Consumer Price Index) numbers do nothing to change that narrative, because we have still seen a modest fall to 8.3%, but the rise in core prices means inflation is likely to be a lot stickier than perhaps markets had been pricing.
“It also helps explain this afternoon’s sharp reversal, with the Dax and FTSE 100 both falling back sharply.”
The German Dax declined 1.59% by the end of the session and the French Cac finished 1.39% lower.
In the US, the main markets opened higher before core inflation jumped beyond expectations and pushed the dollar higher at the expense of equities.
Sterling was also a victim of strength in the dollar, reversing the pattern seen in the previous two sessions.
The pound was down 0.12% against the dollar at 1.153 and was 0.03% higher against the euro at 1.153 at the close.
In company news, Joules shares sank by almost half after it confirmed that its talks with retail rival Next over a potential investment deal ended.
Fashion and homeware brand Joules confirmed investment talks last month following reports it could sell a 25% stake to its larger rival.
Shares slid by 10.25p to 10.5p after Joules confirmed a deal would not take place and that it is assessing other financing options.
Elsewhere, Ocado closed substantially lower as it warned shoppers have cut back their spending in a bid to try to offset the growing cost of living.
Ocado also warned investors that it is facing rising costs, with a £20 million to £25 million additional hit from its annual electricity and fuel bill.
Shares in the retail technology firm finished 116p lower at 679.2p.
Fellow retailers Tesco, Sainsbury and Marks & Spencer finished in the red as a result.
Shares in Fever-Tree climbed by 39.5p to 988.5p after it revealed that sales rose by 14% to £160.9 million, despite the firm facing pressure from higher glass prices.
The price of oil fell back sharply in the afternoon after the US inflation figures gave the US dollar new life, impacting the energy markets.
Brent crude oil decreased by 1.69% to 92.41 US dollars per barrel when the London markets closed.
The biggest risers in the FTSE 100 were Aveva, up 91p at 3,050p, Haleon, up 2.6p at 266.6p, BP, up 3.7p at 461.55p, BAE Systems, up 3.4p at 794p, and Shell, up 6p at 2,327.5p.
the biggest fallers of the day were Ocado, down 116p at 679.2p, Scottish Mortgage Investment Trust, down 42.2p at 807.4p, IAG, down 4.94p at 108p, Segro, down 40.6p at 906p, and Melrose, down 5.05p at 121.6p.