The FTSE 100 dropped in late trading today to close the day down 4.82 per cent.

The index closed at 4,005.68 – a drop of 202.87 points – at a November low but still over the important 4,000 mark.

Drops also came in Europe with the Dax down a miserable 4.92 per cent and the Cac 40 falling 4.03 per cent.

Falls were also seen in New York – with the Dow Jones down 2.23 per cent at 12:15 EST (17:15 GMT).

Anthony Grech, market analyst at IG Index, explained drops in London were fuelled by the reaction to the Bank of England monetary policy committee (MPC) minutes to its 1.5 per cent interest rate cut meeting, which painted a muddy picture of the economy.

“News this morning that the MPC had toyed with slashing the base rate even more spectacularly than the 1.5 per cent implemented earlier this month fuelled further rate-cut expectations, and highlights the full extent of the Bank’s concerns.

“However, the revelation did little to brighten the bleak forecast for the UK economy and the FTSE inevitably tumbled throughout the day.”

Further recession fears particularly hit the mining sector.

Kazakhmys fell 17.91 per cent, Vedanta dropped 14.04 per cent, Lonmin was down 12.91 per cent and Xstrata slid 11.81 per cent.

Financials were also not inured to the sell off – with Barclays down 12.17 per cent and HSBC falling 9.14 per cent.

HBOS was boosted by Lloyds TSB shareholders giving the merger the thumbs up – with its share price up 2.06 per cent to the still depressed price of 64.30p.

Lloyds TSB meanwhile dropped 9.68 per cent as traders thought twice about the deal.

Marks & Spencer fell 5.33 per cent – despite the firm announcing a 20 per cent sale tomorrow.

“Reports that manufacturing businesses are expecting to see the fastest contraction in output for 30 years added more gloom to the markets, with the FTSE now teetering on the edge of the psychological 4000 mark,” Mr Grech said.

“Many manufacturers are limiting expenditure to the absolute minimum, with slightly increased numbers of redundancies and plant closures reported. All this will make grim reading for investors, who seemed to need little encouragement today to push the sell button.”

Amid the bad news, some good notes were heard.

Experian rose 9.22 per cent on good results, ICAP gained 6.20 per cent and hedge fund Man Group was up 4.09 per cent.

Telecom giants Cable & Wireless and BT rose 3.40 per cent and 3.13 per cent respectively.