The FTSE 100 has plunged into correction territory after fears of climbing borrowing costs and the impact of the trade war sparked a bloodbath on global markets.

London's blue-chip index tumbled as much as 1.9pc into the feared territory for the second time in 2018 after Wall Street suffered its biggest drubbing since February's sell-off. A correction is a fall of more than 10pc from an index’s 52-week high.

Donald Trump responded to the US stock market slump that erased hundreds of billions of dollars of wealth by criticising the Federal Reserve's "ridiculous" rate rises. He said the decline was “a correction that we’ve been waiting for for a long time”.

Mr Trump stressed that his trade conflict was not to blame for the jitters in the markets, adding that “the Fed is going loco”.

Markets have climbed a so-called 'wall of worry' in recent months. Stock valuations have returned to frothy levels despite climbing interest rates, Donald Trump's trade war, cracks surfacing in emerging markets and rising tensions between the Italian populist government and the EU.

A spike in US 10-year Treasury yields as investors up their bets on more US rate rises has sent ripples across markets in the last week. An indicator tracking producer prices in the US yesterday suggested that inflationary pressures are continuing to build, stoking fears of the American central bank intervening to rein in a booming American economy.

Stocks later started to claw back their losses in afternoon trading after US inflation unexpectedly slowed in September. Wall Street started trading on a firmer footing before the rout continued while the FTSE 100 languished on a 1.7pc loss. The Dow Jones dropped as much as 1.5pc in volatile trading while the Stoxx Europe 600 index plunged 2pc to a 20-month low.