Oil prices and ECB rise push London towards a bear market

Investors are increasingly concerned that the FTSE index will enter bear market territory later today, after oil prices continued to rise and the European Central Bank cut interest rates.

Overnight concerns about the price of oil caused the FTSE to drop 54.3 points to 5,372 at 08:30 BST, the Times reported.

Since then, the market has remained nervous, staging slight recoveries before falling back again. As of 13:45 BST, the blue chip index was trading at 5411.60, down 14.70 points on the overnight close.

However, experts were concerned that the surging price of oil, which is closing in on $146 a barrel, could continue to undermine investor confidence, especially when the US markets open.

Philip Shaw, an economist at Investec explained to the Times: "Things are not looking good. There is a new pessimism on cyclicals, particularly after Marks & Spencer''s profit warning yesterday and global worries are now putting pressure on the resource stocks.

"Even oils are down despite the fact oil prices are at record highs. It''s that combination which is doing the damage."

The situation was further worsened when the European Central Bank decided to increase interest rates to 4.25 per cent.

Worryingly, the move had the largest impact on the FTSE 250 index, which at 13:45 BST had slumped 156.90 points to 8501.30.

Recently, the Telegraph suggested that the FTSE 250 was a "much better barometer of the UK economy" than the FTSE 100, suggesting there could be further problems for investors.