The prospect of a UK recession shook the City on Tuesday after construction activity in July hit its lowest level since June 2009.
The FTSE 100 Index fell 54 points to 6640 after the construction purchasing manager's index from Markit and the Chartered Institute of Purchasing & Supply fell to 45.9 in July from 46 in June.
Economists blamed the drop on uncertainty sparked by the outcome of the EU referendum on June 23.
Markit economist Chris Williamson said: "The data raise the prospect of the economy sliding into decline in the third quarter and entering recession."
Oil prices continued their fall, with a barrel of Brent crude retreating 0.2% to US$42.05 and a barrel of US light crude declining 0.3% to US$39.94.
Analysts said markets had overestimated the pace at which the oil supply glut would diminish as rig counts continue to rise and gasoline inventories fail to fall.
Among small-caps, Proton Power Systems Plc (LON:PPS) revved up 57.1% to 5.5p as the fuel cell developer announced board changes and a proposed restructuring.
Omega Diagnostics Group Plc (LON:ODX) ticked up 10.4% to 19.88p after the allergy, food intolerance and infectious disease specialist won a Scottish Enterprise research and development grant of £1.8mln.
But Apc Technology Group PLC (LON:APC) fell 12.5% to 8.75p on news that the business improvement technology provider and component distributor raised £1.1mln in a share placing.
Rotork p.l.c. (LON:ROR) backtracked 9.55% to 193.2p as the engineer warned on full-year profits due to increased overheads and pricing pressures.
Back in the top flight, Lloyds Banking Group PLC (LON:LLOY) was among the biggest fallers, down 3% to 51.67p after the Financial Conduct Authority extended its planned deadline for payment protection insurance claims by more than a year, potentially forcing banks to earmark more cash for the scandal.
Direct Line Insurance Group PLC (LON:DLG) got a warm reception for its half-year results. The shares were up 8% at 383.35p early doors, as the company announced a special interim dividend of 10p.
The trading update from builders’ merchant Travis Perkins PLC (LON:TPK) was less warmly received, with the shares sliding 4.3% to 1478p despite a 10.7% increase in pre-tax profit.
Market preview
UK blue-chips are set to resume yesterday’s retreat after a dull showing overnight by Wall Street.
Spread betting quotes point to the FTSE 100 opening at around 6,678, down 16 points from last night’s close.
In the US, the Dow Jones index shed 0.15% at 18,405 and the S&P 500 fell 0.13to 2,170. This afternoon, eyes will be on the US inflation, income and spending data to see whether economic indicators will give some encouragement to the bulls.
Approaching the close of trading, the Nikkei 225 in Tokyo was off 189 points at 16,447 but in Hong Kong the Hang Seng was 238 points to the good at 22,129.
In the UK, it is another busy day in prospect for corporate updates, with bookie Ladbrokes PLC (LON:LAD) and insurer Direct Line Insurance Group (LON:DLG) among the big names to report.
Ladbrokes' interims come after the UK Competition and Markets Authority released its report into the proposed Ladbrokes and Coral mega merger, which said that 350-400 shops would have to be sold to remedy competition concerns in 642 local areas and traders will be keen to hear any update on this.
Irish stockbroker Goodbody said last week: "There is no doubt that the recent Brexit vote and subsequent worries regarding the UK consumer have had an impact on valuation. However, we continue to believe that a merger of Ladbrokes and Coral will drive significant upside from current levels (PT 160p)."
Direct Line is posting interims having previously forecast a hit of up to £140mln from the floods that engulfed northern England earlier this year.
The group expected claims resulting from damage caused by three storms would cost it between £110mln and £140mln.
City broker Numis said last week it expects a decrease for the half year in operating profit before tax to £288mln as reserve releases begin to normalise from recent high levels as well as the £25mln charge for the Flood Re levy.
Analyst Nick Johnson said of more interest will be underwriting margins, particularly for the motor segment where guidance has been for reserve releases to make a smaller contribution than previous years.
Commodities
Gold spot price: -US$2.42 at US$1,350.73 an ounce
Brent crude: +US$0.06 at US$42.20 a barrel
West Texas Intermediate: -US$0.01 at US$40.05 a barrel.
Forex
Sterling: US$1.3196 (+US$0.0022)
Business headlines
Strike threat over ‘wholesale privatisation’ of Post Office – The Times
US crude drops below US$40 a barrel – the FT
Ireland calls for EU drug agency to be moved from London to Dublin – The Guardian
Share tips: Tempus in The Times says hold Intertek and Fidessa; sell Trinity Mirror.