Panic gripped the global money markets once again yesterday as business leaders claimed Britain was now in recession and warned unemployment was set to rise by up to 350,000 in the next year.
Panic gripped the global money markets once again yesterday as business leaders claimed Britain was now in recession and warned unemployment was set to rise by up to 350,000 in the next year.
Any hope that last week's £380bn US rescue plan would swiftly ease the effects of the credit crunch evaporated as nervous investors sold, wiping £93.4bn off shares in London alone.
The FTSE-100 Index slumped almost 8% in a record one-day points fall - the worst since Black Monday in October 1987 - finishing the day on 4589, down 391, the lowest level for four years.
Bank shares took the brunt of the battering with RBS falling 21% and Barclays and HBOS each down 16% as investors put their money into the safer havens of gold and government bonds. Markets across Europe and Asia saw big falls. Trading on exchanges in Iceland and Russia were suspended.
In New York, the Dow Jones dropped below the 10,000 mark for the first time in four years, at one point plummeting by around 800 points before finishing at 9955.50, down 369.88 on the day. One US analyst noted: "The fact is, people are scared and the only thing they're doing is selling. Investors are cleaning out portfolios and getting rid of everything because nothing seems to be working."
Sterling also took a pounding. It fell against the dollar by 3.48 cents, ending on $1.7382; last Christmas it bought $2.11. As fears of a global recession grew, oil dropped below $88 a barrel; in July it was $147.
In the UK, an "alarming" new survey of 5000 firms by the British Chambers of Commerce showed the country is already in recession with business confidence, profits and turnover at record lows and unemployment set to rise by up to 350,000 in the next year.
The business group said it was clear Britain was now in a "worsening" recession and urged the UK Government and the Bank of England to take urgent action to avoid a "major" one.
The Bank's monetary policy committee was urged to cut interest rates by 0.5% on Thursday, while ministers were told to slash business taxes.
The survey's results followed more news of weaker consumption with the number of new cars sold last month plunging by 21.2%, a fall in demand for the fifth consecutive month. In Scotland, the fall in new registrations was steeper at 26%.
At Westminster, Chancellor Alistair Darling again made clear the UK Government would do whatever was necessary to stabilise the financial system.
In his Commons emergency statement, Mr Darling said 98% of UK bank accounts would be covered by deposit protection once the increase in the amount of bank deposits guaranteed by the UK Government - to £50,000 from £35,000 - takes effect from today.
PM Gordon Brown by his side, the Chancellor announced the Bank would inject a further £40bn into the financial system to help ease the credit crunch.
He also warned Europe's leaders not to risk worsening the financial crisis by acting unilaterally to protect their own banks and savers. His intervention came after the German, Danish and Greek governments became the latest countries to guarantee protection for all savings in the event of a bank collapse.
Following a similar move last week by the Irish Government, it intensified pressure on the UK to follow suit.
Mr Darling said Sunday's surprise announcement by the German government had been a "political declaration" of intent rather than a "legally binding" guarantee for depositors.
Nevertheless, he made clear his irritation at the actions of Berlin, just the day after Chancellor Angela Merkel took part in a Paris summit intended to co-ordinate the European response.
Speculation is mounting that the Chancellor is considering a plan to recapitalise the banks, whereby taxpayers' money would be used to buy shares in High Street lenders, providing them with new money.
