Irish stocks were also hit, with banks the primary fallers as their UK peers slid on fears that the government there may slap a levy on lenders. Both Bank of Ireland and AIB are active in the market there.

In the United States, the main indices opened down. The falls came as a key measure of inflation remained steady, but by other reckoning, it advanced. The Commerce Department said that prices climbed 2.6pc in July compared to a year earlier. That was the same rate of increase seen in June.

But stripping out what are typically more volatile energy and food costs, prices were 2.9pc higher in July, compared to a 2.8pc increase in June.

While the inflation figures are encouraging for investors hoping for a rate cut from the Federal Reserve next month, they also raised concerns that the impact of tariffs may be finally starting to filter through to consumers.

Soon after the opening bell in New York, the Nasdaq was 1.25pc lower while the Dow Jones Industrial Average was down 0.5pc. The S&P 500 was down more than 0.7pc.

Fallers included chip maker Nvidia, which was 2.9pc lower.

In Ireland, the ISEQ 20 was down 0.9pc by mid-afternoon, while the ISEQ All-Share index was 0.79pc lower.

Shares in Bank of Ireland had retreated 2.1pc to €12.64, while AIB had declined 0.6pc to €6.95. Permanent TSB had shed 1.3pc, to €2.24.

British bank shares fell sharply on Friday after a think-tank called for a new levy on lenders and a newspaper report said industry figures were worried the government was planning to raise cash by targeting the sector.

Finance minister Rachel Reeves should use her autumn budget to tax banks on the billions of pounds they receive in interest from the Bank of England on reserves held at the central bank, the Institute for Public Policy Research (IPPR) recommended.

Around £22bn (€25.4bn) a year, which goes to the banks as a result of the Bank of England’s bond-buying programme, represents a subsidy to the lenders, the think-tank said.

Echoing calls made by other commentators in recent years, the IPPR said a new tax on the interest the banks received would give Ms Reeves more room to meet her fiscal rules.

In the US, a key tariff exemption also expired yesterday.

A tariff exemption for package imports valued under $800 ended, raising costs for businesses and, in turn, consumers.

Traders are still pricing in a 25-basis-point rate cut in September.

“The numbers released today… leave the door wide open for the Fed to go ahead and cut in their September 17 meeting,” said Art Hogan, chief market strategist at B Riley Wealth.

While underlying price pressures are increasing, the central bank has most likely shifted its focus to shoring up the job market, Mr Hogan said.

Next Friday’s nonfarm payrolls report will offer more insight on the US labour market.

The price of a barrel of Brent oil declined 0.76pc yesterday to $66.91. It’s down from almost $71 a month ago.

(Additional reporting: Reuters)