April has proved a cruel month for the stock market. After an enthusiastic rally at the start of the year - remember when the FTSE 100 burst through 5,000? - markets have been falling consistently for the past two months and, over the last two weeks or so, the decline has been accelerating.

Investors are becoming gloomier, according to surveys by banks such as Merrill Lynch and State Street. At the start of the year, there was an air of optimism. The results season was expected to be good and so it proved, with decent earnings from many of the FTSE 100 giants, including the banks and oil companies, and bumper dividend payments from many companies; interest rates looked as if they were at, or near, their peak, consumer spending and the housing market were slowing gradually rather than falling off a cliff.

In wet and windy April, there is much less to look forward to. Growth looks likely to be much more sluggish this year, with high oil prices adding to costs and lower retail sales adding to price pressure. The statistics on unemployment were already less positive, even before news on redundancies at companies such as Index and Rover - and, probably, a number of its suppliers.

But the key reason for the recent stock market jitters is not the domestic economy - which, as Gordon Brown keeps telling us, is not really in that bad a shape, but the US one. A series of poor earnings reports from American companies such as IBM, Wal -Mart and General Motors sent stock markets there sharply lower and while other, equally important businesses such as Texas Instruments and Intel produced better than expected results, investors largely ignored them.

The real pessimists fret that the Federal Reserve will have to increase interest rates sharply to choke off inflationary pressure, given that oil prices seem to be stuck firmly above $50 a barrel, although producer price statistics suggested there was little to fear on that front.

Some eminent economists have even started to warn of the risk of stagflation - the technical term for periods when inflation is rising but economic growth is weak. There is certainly a risk that higher oil prices could undermine consumer confidence: their gas-guzzling cars and air-conditioning units means they are more exposed than we are.