Britain counts the cost of Black Friday’s mass panic

footsie crashes, oil prices tumble and scottish banks’ shares plunge

By Russell Lynch

Published:

World stock markets went into freefall yesterday as recession fears and bank worries led to panic-selling which saw the FTSE 100 Index suffer its worst week since the Black Monday crash of 1987.

On a day that can now be dubbed as Black Friday, oil prices also slumped, leading Prime Minister Gordon Brown to call for the cuts to passed on to consumers.

Oil giant BP and supermarket Tesco slashed their prices at the pumps.

Chancellor Alistair Darling warned it was “essential” the world’s leading economies take action to stabilise financial markets.

And there were growing calls for Westminster to help Scottish local authorities and public bodies which have £50million trapped in Iceland’s collapsed banks.

When trading closed last night, £250billion had been wiped off the value of top companies in the Footsie since the start of the week.

The index plunged 8.9% yesterday, bringing the total loss for the week to 21%, just a percentage point less than the slide of Black Monday.

Following heavy overnight declines in Asia, screens turned red in the City as the London market approached falls of 10% at one stage. There was no respite when US markets opened, with the Dow Jones Industrial Average tumbling by 8% during a volatile early session.

City watchers were confounded by the falls on the eve of the G7 finance ministers summit this weekend.

David Jones, chief market strategist at IG Index, called it “another ugly day”, adding: “There is a real sense of despair. It is difficult to see what can be done to effect a handbrake turn in sentiment in the short term.”

Manoj Ladwa, senior trader at ETX Capital, said: “Markets are normally held in equilibrium by the balance of fear and greed. But at the moment, greed has gone into hiding and fear rules.”

And James Hughes, of CMC Markets, summed it up as “just utter panic.”

Europe was also caught up in the mayhem, with France’s CAC 40 losing 7% and Germany’s Dax down 8%.

In London, banking stocks were among the biggest victims of the turmoil as speculation mounted over the billions the banks may need to strengthen their finances.

Royal Bank of Scotland lost 25% to finish 61% down on the week, Halifax Bank of Scotland fell 19% to end up 37% down over the week and Barclays fell 14% – a 42% slump in seven days.

The sell-off sent the value of safe havens such as gold up by as much as 4% as investors took their money out of volatile stock markets.

And there was little sign that government efforts to rescue banks with a £400billion package had thawed frozen money markets.

Mining stocks plunged amid falling base metal prices, declining demand and growing panic over a potential global recession.

The panic was fed by the International Monetary Fund warning that Britain is on the brink of recession, with the economy forecast to contract by 0.1% next year.

The same factor was hitting crude oil, which was trading below $80 a barrel for the first time in a year.

In New York, crude for November delivery reached a low of $78.61, little more than half the $147 it peaked at less than three months ago. Brent crude was as low as $75.08.

The falls weighed on BP and Royal Dutch Shell, which fell 8% and 9% respectively.

Meanwhile, Iceland’s prime minister sought to calm his bitter spat with Mr Brown last night.

Geir Haarde said he was co-operating “amicably” with the UK on the banking crisis and stressed that Iceland will “honour its obligations” – but refused to guarantee that British taxpayers will get their money back.