More than £93billion was wiped off the value of the UK’s biggest companies yesterday as London’s FTSE 100 suffered its biggest fall since Black Monday more than 20 years ago.
The price of oil also fell to its lowest level for eight months as fears over the global economy deepened and governments rushed to prop up banks across Europe.
A new report revealed that Britain is already in a recession, with business confidence, profit and turnover at record lows and unemployment predicted to rise by as much as 350,000.
Figures released by the motor industry showed the number of new cars sold in Scotland last month fell by more than 26%. The Footsie slumped 7.8% – its largest one-day percentage decline since the aftermath of Black Monday in October 1987.
The index closed 391.1 lower at 4,589.2, its lowest close since October 2004. Chancellor Alistair Darling did little to restore shattered confidence with firm commitments.
In a Commons statement, he said “all practical options must remain open” for dealing with the crisis, but added that it would be irresponsible to give a running commentary on plans.
In London, trading screens turned red after a weekend in which European governments rushed to support failing banks.
CMC Markets analyst James Hughes said: “What we have seen over the last few weeks is a once in a lifetime event.”
The pressure came after German lender Hypo Real Estate became the latest to receive state aid.
Italy’s largest bank, Unicredit, also warned on profits after announcing asset sales and plans to shore up its balance sheet with a £5.1billion cash injection.
Meanwhile, French bank BNP Paribas agreed to buy a majority stake in struggling bank Fortis.
Iceland’s stock exchange suspended trading in shares of six major banks as its government worked on an economic rescue plan. The Glitnir bank was nationalised last week.
The shock waves reverberated through global stock markets.
In the US, Wall Street’s Dow Jones Industrial Average traded below 10,000 for the first time in over three years, plunging as much as 800 points before closing at 9,971, a loss of about 350.
In Asia, Japan’s Nikkei 225 average slid more than 4% to a four-year low, while in Hong Kong the Hang Seng tumbled 5% as Friday’s backing of a US financial rescue was all but forgotten.
In London, investors were unnerved by reports that the government could take big stakes in banks to strengthen their finances. Halifax Bank of Scotland and Royal Bank of Scotland both slumped 20%, while Barclays lost 15%.
Just a week ago, the UK’s benchmark index also fell more than 5% as markets reacted to Bradford & Bingley’s nationalisation.
ETX Capital senior trader Manoj Ladwa said: “Black Mondays used to be a once-a-decade event. Now they’re coming along more regularly than a London bus.”
Analysts warned public stakes in banks, while offering some security, could result in existing shareholdings being diluted.
The London market was also hit hard by hefty falls from heavily weighted mining stocks after experts warned that the sector’s earnings could almost halve this year.
Oil prices plunged to an eight-month low and was still below $90 a barrel last night amid fears over the impact of a huge slump in demand.
Hargreaves Lansdown’s head of equity analysis, Richard Hunter, warned of the wider effects of the money-market freeze paralysing the banking system.
“The very fact that banks are unwilling to lend to each other, on the basis that the other counterparty may not even be in existence at the end of the loan, means that they will be equally unwilling to lend to companies, or indeed individuals.
“Stability must return to the system first of all before markets return to anything like their previous levels of activity.”