Millions of shareholders were reeling last night after a stock market plunge which wiped as much as £36billion off the value of Britain’s biggest listed companies.
Fears that the economy is on the brink of a recession sent the FTSE 100 index of leading shares tumbling as much as 2.8 per cent to its lowest level since November 2005.
The catastrophic fall sent the Footsie briefly below the all-important 5,384 level - 20 per cent below its peak last October and into what City traders called a ‘bear market’.
On the slide: A Bloomberg screen shows the FTSE falling yesterday as the City officially entered a Bear Market
Investors take a move into ‘bear’ territory as a signal to sell shares and put their cash into safer investments.
The FTSE dropped as low as 5,358, a fall during the day of more than 154 points, but rallied to close down 72 points at 5,440.5.
The sell-off will send shivers down the spine of the legions of small investors across Britain. Millions more could be affected as almost all company pension funds put money in shares.
More than £250billion has now been erased from the value of Britain’s leading shares since the credit crunch started last summer following the collapse of the U.S. low-income property market.
The latest plunge was triggered by a stark warning from the British Chambers of Commerce that the economy may be only months away from going into recession.
Businesses have put the brakes on investment amid a growing mortgage drought, falling house prices and sky-high energy and food costs, said the lobby group.
Shares in Britain’s biggest banks fell sharply on fears that an economic reverse will see tens of thousands of homeowners default on their mortgages.
Investors also took fright at speculation that America’s two biggest mortgage companies, state-backed Fannie Mae and Freddie Mac, may need to raise £38billion in fresh capital to cover mounting property market losses.
Bradford & Bingley lost another fifth of its value as it emerged that the six major High Street banks have stepped in to safeguard its attempt to raise £400million.
Even Barclays, which claims to have been largely immune from the sub-prime crisis, fell back after shutting a specialist home loan division with the loss of around 300 jobs.
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