The FTSE 100 Index sank to a fresh three-and-a-half-year low as the sell-off in the banking sector and fears over the global economy sent markets worldwide reeling.
London’s top flight dropped 2% to 5574 – its lowest level since July 2012 – while it was also a sea of red on Wall Street and across Europe.
Falling oil prices and warnings over worldwide growth from the US Federal Reserve put stocks under pressure, with the Dow Jones Industrial Average in America falling 1% in early session trading.
The Cac 40 in France was 3% lower, while Germany’s Dax dropped 2%.
UK stocks had enjoyed a brief respite on Wednesday, but gains were limited after the Fed warned over market volatility and as chairwoman Janet Yellen poured cold water on the prospect of a second rise in interest rates any time soon.
The rout in the banking sector also continued apace, with investor confidence hit further after France’s Societe Generale became the latest player to warn over profits.
It scrapped a long-standing earnings target for the year ahead, blaming a rise in regulatory capital requirements and “the economic and financial environment”.
Soc Gen saw its share price dive 12%, while Credit Suisse and German giant Deutsche Bank suffered share losses of nearly 10%, sparking further falls among London-listed banks.
Barclays was 5% lower, Standard Chartered dropped 3% and Royal Bank of Scotland fell 2%.
The sector has been hit hard this week amid worries it is heading for another crisis, with concerns over its ability to withstand a slowdown in global growth.
Connor Campbell, financial analyst at Spreadex, said markets are “caught in an ugly downward spiral led by the panic-ridden, and increasingly bloodless, banking sector”.
Ms Yellen’s comments reinforced worries that the worldwide economy is heading for the rocks.
The Fed raised US rates in December for the first time in almost a decade as the economy grew strongly in 2015, prompting most economists to pencil in four more rate rises this year as American trade continued to expand.
But on Wednesday night Ms Yellen told US policymakers that since the start of the year, the economic slowdown in China and the continued collapse of oil prices and other commodities threatened global growth prospects.
She said: “This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth.”
Oil prices also continued to weigh on markets, with Brent Crude down by 1% to 30.80 US dollars for a barrel of oil, and is more than 70% lower than its peak in summer 2014.
This saw blue chip major BP fall 4%.
Defensive stocks fared well in the rout, with gold and silver miners Fresnillo and Randgold Resources up more than 5% in the rush to safe haven investments.
Since the start of the year, the FTSE 100 Index has fallen 8%, while the US Dow Jones Industrial Average is 8.5% lower.
Recommended for you
