Bank''s inflation warning sends FTSE down

The stock market in the UK fell back today (August 13th) amid gloomy predictions about the state of the UK economy.

After several days when it seemed like the FTSE was recovering from slumps earlier this summer, the blue chip index dropped 85.90 points to close at 5,448.60.

The drop was precipitated by an overnight decline on the New York stock exchange which suggested that western economies are not out of the woods yet.

Later, the Bank of England''s inflation report indicated that rate cuts were highly unlikely in the near future as there will be a continued upwards pressure on prices.

Bank governor Mervyn King explained: "The British economy is going through a difficult and painful adjustment – to higher energy and commodity prices, and in banking, credit and housing markets."

According to the Press Association, this news principally hit "retailers, pub chains and housebuilders".

Indeed, construction firms Redrow, Travis Perkins and Barratt all saw more than ten per cent wiped off the value of their shares at the close.

Pub chain JD Wetherspoon also struggled, with its share price declining 14.6 per cent to close at 246.75.

Fallout from yesterday''s announcements from UBS and JP Morgan ensured that the UK''s banks dropped. Barclays lost over seven per cent to close at 351.50, while HBOS declined a similar amount to finish at 307.