The sharp fall in the Dow Jones, driven by inflation worries, took the index below 6,400 for the first time this year and resulted in US share prices retreating for the fifth week in a row.
The key day for UK economic data is Wednesday when the publication of unemployment and average earnings figures will give an indication of the strength of inflationary pressures in the domestic economy.
The market is looking for a further fall in unemployment in March of between 40,000 and 50,000 following February's 68,000 decline. Average earnings rose to 5 per cent in January fuelled by bonus payments in the City, and are expected to remain around the same level.
However, if the fall in unemployment is considerably more pronounced, dealers may conclude that it makes an increase in interest rates more likely after the election.
Separately, Incomes Data Services said that pay rises were keeping ahead of inflation with more than half this year's settlements running at 3- 3.5 per cent. Only one in 10 was below the headline inflation figure of 2.7 per cent.
Elsewhere, producer price figures due out today are expected to show little in the way of inflationary pressures while Thursday's Retail Price Index is forecast to show a slight dip in the underlying rate of inflation from 2.9 per cent in February to 2.8 per cent in March.
Input prices are forecast to have fallen year on year by around 6.5 per cent thanks to the strength of sterling while output prices are not expected to have increased year on year by more than 1.5 per cent.
John Shepperd, chief economist at Yamaichi, said: "The implication should be that, whilst rates are going up, the extent of the rise will turn out to be modest - possibly no more than 0.5 per cent on base rates."
Simon Briscoe of Nikko Europe, meanwhile said there was a case for an incoming Labour chancellor to leave interest rates unchanged. He said that a rate rise would do nothing to combat the biggest problem for the economy - the strength of sterling.
Moreover, Gordon Brown might resist being "railroaded" into moving on rates given that Labour had made so much play about needing to look over the books and overhauling the policy framework for interest rate decisions.Reuse content