London’s stock markets faltered on Wednesday, with the FTSE 250 slumping to a five-month low and the pound weakening as UK long-term borrowing costs continued to spike.
The FTSE 100 was treading water, closing just 5.75 points, or 0.07%, higher at 8,251.03.
Meanwhile, the more domestically focused FTSE 250 tumbled 2%, as mid-cap stocks came under pressure while government borrowing costs continued to surge.
A continued sell-off in the bond market saw the yield of 30-year gilts hit a peak of 5.36%, the highest level since 1998.
Investors have been reacting to concerns over the threat of stagflation and a wider global sell-off in government bonds.
Chris Beauchamp, chief market analyst for IG, said: “The mood music around the UK continues to deteriorate as 30-year gilt yields rise to their highest level in over a quarter of a century.
“Investors have come back from the festive break in a sour mood concerning the UK, and have now decided that the UK’s cheap status is not an attraction, but instead a reflection of the poor situation facing the British economy.
“The cautious attitude is evident across markets, but it seems to be the UK that is bearing the brunt.”
The value of the pound slid by 1% against the US dollar, at 1.2355, the lowest level since April last year. Sterling was also down 0.6% against the euro, at 1.199.
In Paris, the Cac 40 slid 0.49% on Wednesday, and in Frankfurt, the Dax closed 0.05% lower.
Over in New York, trading got off to a hesitant start, with both the S&P 500 and Dow Jones indices more or less flat by the time European markets closed.
In company news, energy giant Shell said it expects to take a 1.3 billion US dollar (£1 billion) hit in the final quarter of its financial year from payments for emission certificates in Germany and US.
The company also said it expects profits in its gas business to be “significantly lower” in the fourth quarter than the previous three months, because of hedging contracts expiring.
Shares in Shell closed 1.4% lower.
Model train maker Hornby enjoyed a boost to its share price after revealing its sales lifted over the Christmas period, with revenues surging in December.
The Margate-based company said the strong festive performance has helped overall group sales lift by 8% in the financial year to date. Its share price climbed 12.2% at close.
The biggest risers on the FTSE 100 were BAE Systems, up 32p to 1,186p, Pershing Square, up 98p to 4,116p, DS Smith, up 11p to 554p, Relx, up 71p to 3,770p, and Antofagasta, up 30.5p to 1,664p.
The biggest fallers on the FTSE 100 were Barratt Redrow, down 21.3p to 398.7p, St James’s Place, down 42.5p to 820.5p, United Utilities, down 50.3p to 974.2p, JD Sports, down 3.96p to 97.54p, and Legal & General, down 8.8p to 221.4p.