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Fears of an economic slump to rival the recession of the early 1990s have wiped almost £50bn off the value of Britain's top 100 companies and sent stockmarkets around the world into a tailspin.
The wave of panic selling in the City followed warnings that the tiger economies of the far east, which have so far escaped the worst of the financial crisis, would also see a sharp slowdown in growth.
Major continental exchanges plunged by as much as 9%, while in the US the Dow Jones industrial index slumped more than 3% as traders digested a week of dire warnings, including an unusually frank admission of impending recession from the Bank of England governor, Mervyn King.
Banks again led the downward trend, particularly HSBC and Standard Chartered, both of which have extensive operations in Asia. But all leading shares lost value, with little sign of the situation stabilising over the next few weeks.
In Japan, Sony warned that demand for consumer electronics was down and its analysis was echoed by Korea's Samsung. Profit warnings from the two firms worked to drag down the value of rival electronics groups Philips and US stockmarket darling Apple, along with UK retailer Currys, which lost 15% of its value.
Data from the Office for National Statistics showing that national income shrank for the first time in 16 years, by 0.5% between July and September, was blamed for much of the stockmarket decline. Britain was the first of the seven most-developed industrialised nations to publish economic data for the period and some economists said they expected the other six nations to report similar declines in economic output.
"This is going to be a long drawn-out downturn of about five quarters of negative growth, and there will be very few major economies that will escape recession," said James Knightley, an economist at ING Financial Markets in London. "With asset values falling, real incomes down and corporate profits declining we can see a real drop in investments, and the government is in no position to help."
The figures confirmed comments earlier this week by Gordon Brown and Mervyn King that a recession is likely. The National Institute of Economic and Social Research said on Wednesday that Britain's economy would suffer more than other major industrialised countries because of a combination of rising household and public debt, a sharp fall in consumer spending, and declining house prices.
Richard Hunter of stockbroker Hargreaves Lansdown said bank shares would continue to suffer and a large increase in arrears and repossessions was expected as unemployment rises and a squeeze on family incomes tightens over Christmas.
Royal Bank of Scotland slumped 9% to little more than 60p a share, while HBOS dived 15% to settle at 59.8p. Both banks, which expect to be partially nationalised by the government, have seen 90% of their value wiped out since a peak early last year. HSBC and Standard Chartered were considered safe havens until yesterday, when Asian nations signalled they were also expecting hard times ahead. India cut interest rates to stimulate the country's flagging economy. On Wall Street stocks fell sharply within minutes of the opening bell, but fears of a dramatic collapse to match the banking crisis of a fortnight ago were allayed as the Dow reached midday with a relatively modest drop of 3.5%.
There was a glimmer of economic relief in data showing a 5.5% rise in US home purchases during August. The National Association of Realtors suggested that, in terms of sales, the depressed property market appeared to have bottomed out.
On the stockmarket big losers included the ailing motor industry. General Motors shares slumped by 13% on fresh rumours, hotly denied by the company, that it could file for bankruptcy. Energy companies suffered a pounding as the price of a barrel of crude oil reached a 17-month low. Chevron's shares dropped by 6% during early trading, while Exxon Mobil slipped 3.2%.
An emergency cut in production by Opec failed to halt the ongoing slide in the oil price yesterday, as analysts warned that the cartel could be forced into squeezing supply further. Opec's decision, made by oil ministers meeting at the organisation's Vienna headquarters, drew criticism from the British and American governments and appeared to spell the end to further price cuts at the UK's petrol pumps.
The 13-nation cartel - which includes Saudi Arabia, Iran and Iraq - decided to reduce production by 1.5m barrels a day in an attempt to shore up the oil price after what it described as "a dramatic collapse unprecedented in speed and magnitude". But the cartel's action failed to have the desired effect, with the cost of a barrel of US light crude slipping almost $3 in late European trading to just under $65.
Since hitting a peak of $147 in July, the oil price has more than halved as the world economy slides towards recession.
Hugo Navarro, an oil market analyst at Capital Economics, predicted Opec would be forced into further cuts, representing a total reduction of 4m barrels a day by the end of 2009. Yesterday's action would not stop the price falling, he warned. "The global economy is going to be getting worse in the next 12 months. We haven't seen the worst of it yet."
The chancellor, Alistair Darling, said Opec's decision was disappointing. "Governments in the Gulf and governments in the far east, Europe and America are all in this together," he told BBC Radio 4's The World at One. "We should make sure we act together." The prime minister echoed the criticism. "I don't like the cut in production but we can see that the oil price has halved," he said.
The pound suffered its biggest fall in 16 years against the dollar early yesterday as official data showed the UK economy had contracted for the first time since the early 1990s. Sterling plummeted 10 cents at one stage to a six-year low of $1.5270 after figures from the Office for National Statistics showed a 0.5% decline in the economy in the third quarter of the year, far worse than the 0.2% contraction analysts had expected. It later recovered to around $1.5870 - still 6% down on the day.
Just over two months ago the pound was worth $2 but it has now shed more than 25% of its value against the dollar. Sterling also fell to a record low against the euro, slipping from €1.256 overnight to €1.2205, making a euro worth around 82p. On a trade weighted basis, the UK currency has declined by 8% since August.
Piers Cracknell, commercial director at currency specialist Moneycorp, said: "The pound is falling against the dollar at its fastest rate for 16 years - faster than at any time since the UK came out of the exchange rate mechanism.
"Anxiety about the UK economy reached new heights on Friday as figures confirmed negative growth for the third quarter of this year. Risk-averse investors are abandoning the lame-duck pound for the lower-risk US dollar and, in particular, US treasury bonds. The implications of this for a country so heavily reliant on its imports as the UK may be severe."
Opposition parties criticised the government. The shadow chancellor, George Osborne, said: "Once again, under Labour, the pound in your pocket is worth less.
"Indeed, Gordon Brown has set a new record for Labour governments, but it's not one he's likely to boast about. The 25% fall in the value of the pound over the last year is even greater than the devaluations under Jim Callaghan and Harold Wilson. It's a sign that international investors think Britain is badly prepared, as boom turns to bust."
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