The London market opened sharply lower on Thursday morning after the head of the US central bank said the outlook for global economic growth had become “uncertain”.
The FTSE 100 Index slumped by 158 points to 5515, after US Federal Reserve chairwoman Janet Yellen poured cold water on the prospect of a second rise in interest rates any time soon. The London market floundered at three-year lows.
Ms Yellen raised US rates in December for the first time in almost a decade as the economy grew strongly in 2015, prompting most economists to pencil in four more rate rises this year as American trade continued to expand.
But on Wednesday night Ms Yellen told US policymakers that since the start of the year the economic slowdown in China and the continued collapse of oil prices and other commodities threatened global growth prospects.
She said: “This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth.”
Brent Crude fell by more than 1% to just above 30 US dollars for a barrel of oil, and is more than 70% lower than its peak in summer 2014.
Germany’s DAX and the Cac 40 in France were both down around 3%.
Economists had expected the US to raise rates in March, but after Ms Yellen’s comments most have pushed this assumption back to June at the earliest.
Ms Yellen said China’s currency devaluation at the start of the year coupled with its slowdown was behind some of the steep falls in global commodity prices, which in turn were creating stress for exporting nations.
China is the world’s second largest economy behind the US.
Since the start of the year the FTSE 100 Index has fallen 8%, while the US Dow Jones Industrial Average is 8.5% lower.