The value of Britain’s biggest companies suffered their steepest one day fall for more than a month yesterday as fears over the global economy on both sides of the Atlantic hit the financial sector.

In the UK, Bank of England policymakers reiterated expectations that inflation would rise, echoing similar comments from the US Federal Reserve on Wednesday evening.

Events in Belgium, where Fortis announced a €8 billion (£6.3 billion) restructuring, and comments from Opec that oil could reach $170 a barrel this summer also hit stocks.

The FTSE 100 closed down 147.9 points, or 2.6 per cent, at 5,518.2, its lowest close since late March.

Banks were the worst hit as inflation worries were compounded by a warning from Goldman Sachs of further writedowns in the US banking sector. Barclays retreated 27¼p to 303¾p, Lloyds TSBfell 21¾p to 306¾p, and Standard Chartered lost 116p to £14.53, after it issued a cautious outlook. HBOS was a heavy faller, down 16p at 276p, with its shareholders approving its $4 billion rights issue.

However, the London Stock Exchange was the day’s biggest faller, down 123½p at 828½p, as the market took the view that Wednesday’s gains were down to the announcement of a new nondisplay order trading platform with Lehman Brothers rather than the Qatar Investment Authority building its stake.

Big oil users such as British Airways, down 17¾p to 211¼p, andCarnival, the cruise operator, down 117p at £16.41, were among the heaviest fallers as oil prices rose more than $3 a barrel.

Higher oil prices boosted Cairn Energy, up 47p at £30.86, andRoyal Dutch Shell A, up 1p at £19.85, with the shares also given a lift by plans for a floating LNG project. The other blue-chip gainers were Anglo American, up 18p at £33.03, and Lonmin, up 92p at £31.59, tracking prices of gold and copper, and platinum, respectively.

The retail sector suffered after the mid-cap electronics retailerDSG International, down 2½p to 42½p, posted a 30 per cent slump in profits and issued a “very cautious” outlook for consumer spending. Next fell 48½p to 978½p, Marks & Spencer lost 11¾p to 338½p and Kesa Electricals was 9¾p lower at 157¼p, also hit by Deutsche Bank cutting its target price.

Housebuilders featured among the 250’s biggest fallers after Credit Suisse advised clients to avoid the sector. Persimmonlost 37p to 302p, Barratt Developments fell 4¼p to 67p andBellway was 27¾p lower at 443¼p.

Regent Inns dropped 2.62p to 3.88p after it said that offer talks for the company had ended and it cautioned that full-year profits would be “minimal”.

Arriva, the bus and train group, gave some relief, rising 17p to 648p, after an upbeat trading update.

Bradford & Bingley, up 4½p to 80p, was the 250’s biggest riser after Resolution confirmed that the mortgage lender had refused it access to its books. After the market closed Resolution said institutions representing about 25 per cent of the shares of B&B had contacted it to support its request for access to conduct due diligence.

— New York: The Dow Jones industrial average fell to its lowest level since September 2006 on recession worries, which were increased by fears of oil prices going up and by General Motors’ shares hitting a 53-year low. The Dow closed off 358.40 at 11,453.40.