FTSE 100 falls to half of peak level

More than half of the entire value of the London stock market has been wiped out since the peak of the boom at the end of the last millennium.

The FTSE 100 suffered its fifth consecutive fall yesterday to take the index to 3,436 ­ less than half the 6,930 it hit on New Year's Eve 1999. This means some £700bn has been wiped off corporate and investors' wealth in just three years.

A combination of grim economic news from the US, a surge in the oil price and mounting uncertainty over the impact of a war on Iraq conspired to push the index of leading companies to its lowest level since July 1995.

There was fresh gloom after the market closed as new figures showed UK retail sales growth slumped to a four-year low in February as shoppers deserted the high street.

The FTSE 100's fall triggered fears that the market had entered what analysts are calling an "ice age" where stock prices stagnate in an environment of low inflation and minimal profits growth.

Alex Scott, a senior analyst at Seven Investment Management (7IM), said: "There's a school of thought that if markets make a 50 per cent retracement then you will get a long-term bear trend for four years or more."

The Conservative Party seized on the latest falls, laying the blame on Gordon Brown for imposing a £5bn tax on share dividends and forcing pension funds to offload stocks. Michael Howard, the shadow Chancellor, said: "It is time for the Chancellor to take responsibility for the effect of his policies on millions of holders of pensions and endowments."

A Treasury spokesman said the UK was caught up in a global downturn but had not suffered as badly as France and Germany. "As the Chancellor said a few weeks ago, we understand the concerns that uncertainty causes for investors and consumers alike," he said.

Dealers said trading was dominated by concern that a Middle East conflict could start within days, now Britain and the US had set a 17 March deadline for Iraq to comply. The uncertainty triggered a sell-off across North America and Europe. On Wall Street the Dow Jones sank 2.2 per cent to 7,568 while the Nasdaq fell 2.1 per cent to 1,278. The hi-tech index is now more than 75 per cent below the all-time peak it hit exactly three years ago. In Europe, the falls were led by the German and Dutch markets, which both closed down almost 4 per cent.

The gloom was compounded by a surge in the oil price. Separate figures showed the recent surge in oil had pushed up manufacturers' raw materials costs to a three-year high.

Prices of factories' input costs rose at annual rate of 5.9 per cent in February. But firms were only able to raise their prices by 1.6 per cent. Jonathan Loynes, the chief UK economist at Capital Economics, said: "Manufacturers' margins are clearly under strong downward pressure."

Analysts said falling profits would force companies to shelve employment and investment plans. They believe the key issue is whether consumer confidence, which propped up the economy in the wake of 11 September, will continue to fall.

7IM's Mr Scott said: "The consumer is under significant pressure with increases in [national insurance] taxation, the negative wealth effect from the stock market and a real risk that the positive wealth effect from the housing market is being undone."

The British Retail Consortium last night declared that the "retail boom was over" as it published figures showing high street sales grew at the slowest rate for four years last month. The value of sales rose 1.3 per cent in February on a year ago.

Bill Moyes, the BRC's director general, said: "As these figures show, consumer sentiment is weak and the industry needs positive action from the Chancellor to stimulate demand."

The world's leading central bankers yesterday moved to boost confidence, saying there was little threat of a global recession despite uncertainty over a possible war in Iraq. Speaking after a meeting of the G10 nations, Sir Edward George, Governor of the Bank of England, said: "If you look through the Iraq uncertainty a gradual strengthening of the US economy seems a more likely prospect than significant weakening."

Earlier the Confederation of British Industry said confidence among services firms had suffered a "significant decline".