The prospect of up to three more interest rate rises this year on the back of higher than expected inflation sent stock markets into a tailspin.

Credit Suisse now expects that the Bank of England will raise rates to 5% in August after April inflation data showed it coming in at 8.7%, above predictions of 8.4%.

Japanese bank Nomura is expecting the Bank to raise its main interest rate three more times to 5.25% by September.

London’s blue chip FTSE 100 index fell to its lowest level in six weeks, losing 135.85 points to close at 7,627.10.

There were also heavy falls on Germany’s DAX and the CAC 40 in France as European markets suffered their biggest one-day loss since March.

“Today’s CPI print probably removes any degree of debate around a further increase in Bank rate at the June MPC,” admitted Cathal Kennedy, senior UK economist at RBC.

House builders were among the biggest fallers, with Persimmon down 5.52% and Taylor Wimpey off 4.55%.

The inflation problem is also continuing to plague the US. In a speech posted to the Federal Reserve’s website, governor Christoper Waller said that with the economic data that policymakers now had in hand “we are not making much progress on inflation”.

Officials now seem to agree that additional rate hikes are still on the table.

An additional worry is that there is still no sign of a deal on raising the US government’s $31.4 trillion debt limit in advance of the 1 June deadline that could trigger a default kept Wall Street on edge.

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Inflation falls as Bailey admits Bank made mistakes