London’s FTSE 100 share index plunged towards the psychologically significant 5,000 marker today as global growth fears gripped investors.

Additional worries about the interbank lending and the financial strength of the European banks triggered a mass equities sell off, leaving the FTSE with the largest one day fall since 6 November 2008.

As the market tumbled to 5,081 – a drop of 4.7 per cent – analysts begin to quietly admit that a double dip recession was now very likely.

James Hughes, senior markets analyst at Alpari UK, explains that as long as questions remain about the strength of Spain and Italy, markets would not bounce back.

He says, ‘When we were looking at Greece, the silence was deafening and that caused market jitters. Now we are waiting for answers again but with Greece we were talking billions of pounds. Now we are talking trillions of pounds.

‘There just isn’t a fund with that sort of money in it and Merkel and Sarkozy are trying to calm things down but there is so much work that needs to be done.’

Hughes says while the UK is in a slightly better position economically than some of its European neighbours, inflation could change the fortunes of Britons significantly.

He explains, ‘The UK is the least ugly of the ugly sisters. There is a growing feeling that the coalition has not done a bad job with everything being touted as improving in 2012.

'Inflation is predicted to peak at 5 per cent in 2011 but to come down in 2012/2013 according to the Bank of England.

‘And, because we’ve seen the trend so far, we believe that this is going to be the case. But it could be the case that we begin to have the same problems as Europe again. We are on a knife edge in terms of economic recovery.’

Michael Hewson, market analyst at CMC Markets, explains that markets have had the rug pulled out from underneath them partly as a delayed reaction from the Paris meeting earlier this week and a downgrade from Morgan Stanley regarding its outlook for global growth.

Analysts had cited insufficient policy response to Europe's sovereign debt crisis. Morgan Stanley stated that the US and Europe were "dangerously close to recession".