Update: A profits warning by US department store Target has hit stocks in Wall Street and contributed to steep market falls in the UK and Europe.

The FTSE 100, already under pressure after news that UK inflation hit a 40-year high of 9% last month, fell in afternoon trading to close 1% or 73 points down at 7,445.

In the US the S&P 500 gave up yesterday’s gains, sliding 2.8% to 3,973, below a testing point of 4,000 that traders regarded as a bearish sign of more falls to come.

Fragile US investor sentiment was knocked when Target (TGT.N) kicked off a retailer selloff, its shares plunging 25% after saying its results were hit by higher costs.

The more volatile Nasdaq tech index sank 3%, leaving the benchmark down 24% this year.

Wall Street had been expected to open lower after Federal Reserve chairman Jerome Powell told a WSJ conference that the US central bank would ‘have to consider moving more aggressively’ if soaring inflation failed to respond to earlier rate hikes, a stance that could put a three quarter of a percentage point rise back on the table after he withdrew it earlier this month.

Yields on 10-year US government bonds rose above 3%, further adding to the presssure on equities as investors worried again about the prospects of higher interest rates on the economy and the market.

‘Fears there could be more large rate hikes are hurting equities,’ said David Madden of Equiniti Capital.

Oil slipped on economic fears with Brent crude down $2 at 109.89 a barrel.

On currency markets the pound tumbled 0.7% to $1.2406 against the dollar. 

In London inflation was already upper in investors’ minds after The Office for National Statistics reported the consumer price index (CPI) jumped to 9% from 7% in March, as food and fuel costs continue to be impacted by the war in Ukraine and supply chain disruptions.

Chris Beauchamp, chief market analyst at IG Group, said: ‘Today’s CPI confirms the bind in which the Bank of England finds itself, and shows [Governor] Andrew Bailey was right to be so gloomy.

‘The squeeze on consumers is getting worse, and with factory gate prices even higher, it will get worse still. But the Bank knows it will struggle to fight inflation with the economy so vulnerable to higher rates and potential recession, hence the weakness in sterling this morning.’

Online grocer Ocado (OCDO) was the FTSE 100’s biggest faller, sliding nearly 9% to 730p, meaning the shares have lost over half their value this year.

Experian (EXPN) dropped 4.3% to £25.55 despite growing revenues 17% and earnings pushing ahead 21% in the year to end of March. However, the market was disappointed by management guidance for the present year coming in a little lower than expected.

But Rolls-Royce (RR) was a bright spot, shares in the aerospace engineer rallying 4.4% to 84.8p.

The mid-cap FTSE 250 fell 0.5% to 19,966, dragged lower by package holiday operator Tui (TUI) which tumbled 13% to 214p after cancelling all holidays to Sri Lanka. The Foreign Office has urged Britons not to travel to the country unless absolutely necessary following local protests against its worsening economic crisis.

Premier Food (PFD) did its best to lift the FTSE 250, jumping over 10% to 118p after the maker of Mr Kipling cakes and Bisto delighted investors with a 37.6% rise in pre-tax profits, 20% leap in its dividend 20% and a pledge to lift its prices to combat rising costs.

Victoria Scholar, head of investment at Interactive Investor, said: ‘These results point to a healthy performance, which has allowed Premier Foods to grow in terms of volume and market share… however, like many businesses, the inflationary backdrop is increasing its cost burden, which Premier Foods is tackling through higher prices rather than margin sacrifice.’

It was a mixed day of trading for private equity trusts. HgCapital (HGT) slipped 2% to 387p from a 10% discount after booking a £4.2m uplift on the sale of IT consultancy itm8 to Axcel, a Nordic private equity fund.

But Abrdn Private Equity Opportunities (APEO ) gained 3.7% to 476p and 3i Group (III ) put on 1.3% to £13.65.88

Commodities-linked Blackrock World Mining (BRWM ) added 1.6% to 687p.

The US retreat knocked another 3.4% off Baillie Gifford US Growth (USA ) at 158.4p, but its big sister Scottish Mortgage bucked the downturn this time with a 0.5% gain to 785.9p.