FTSE 100 suffers its worst day of trading since July

London's benchmark index ended 1.5%, extending losses for a third consecutive session and reaching a one-and-a-half-month low

The FTSE 100 suffered its worst day of trading since July, declining as much as 2% during the day, after higher than expected inflation data from the UK and EU. Wall Street also followed suit in New York.

London's benchmark index ended 1.5%, extending losses for a third consecutive session and reaching a one-and-a-half-month low. On the bloc, the CAC shed 1.1% in Paris, and the Frankfurt DAX was 0.9% lower.

It came as UK inflation increased to 4% in December, according to the ONS on Wednesday, and also as the ECB president said an interest rate cut in summer was "likely".

The annual rate of price rises in Britain increased from 3.9% in November and was higher than the 3.8% that had been predicted by economists.

While the economic data this week is likely to be a key bellwether for the timing of when the BoE might look at starting to cut the base rate, the key test for markets won’t be on whether we see a further downturn in inflation at the end of last year, but how much of a rebound we see in the January numbers, Michael Hewson of CMC Markets said.

Whatever markets might look to price as far as rate cuts are concerned the fact that wages are still trending above 6% is likely to stay the BoE’s hand when it comes to looking at rate reductions when they meet in just over a fortnight, he added.

It is also important to remember that at the last rate meeting 3 members voted for a further 25 basis point rate hike, he said.

He added: While a further slowdown in the headline rate is likely to prompt a change of heart when it comes to calling for a rate hike, it will take more than a further slowdown in the headline rate for these 3 MPC members to do a complete 180 about turn and push for a rate cut.

The pound edged up on the back of the news which also kept London's benchmark index under pressure.