Shares around the world tumbled yesterday as the International Monetary Fund warned ‘dangerous undercurrents’ threaten the global economy.
The FTSE 100 index fell another 91.85 points in London to a six-month low of 7145.74, while the Dow Jones Industrial Average was down more than 800 points in New York.
The Footsie sell-off took losses since its all-time high in May to 9.6 per cent.
The slump has wiped nearly £200billion off the value of Britain’s leading companies in a blow to millions of savers with money tied up in the stock market.
The FTSE 100 index fell another 91.85 points in London to a six-month low of 7145.74, while the Dow Jones Industrial Average was down more than 800 points in New York
The sell-off in London was echoed in Europe and the United States where the S&P 500 clocked up its longest losing streak since Donald Trump became president.
It came as the IMF delivered a gloomy assessment of the outlook for the global economy.
As well as sounding the alarm over a no-deal Brexit, and its threat to the stability of the world economy, the Fund warned that trade tensions are growing and that global debt is at a record high of £138trillion.
It is feared that, against this backdrop, rising interest rates in the US could bring stock markets crashing down.
The IMF, whose autumn meetings with the World Bank are taking place on the Indonesian island of Bali this week, said: ‘Near-term risks to global financial stability have increased somewhat.
‘Looking ahead, clouds appear on the horizon. Support for multilateralism has been waning, a dangerous undercurrent that may undermine confidence in policymakers’ ability to respond to future crises.’
It said that despite mounting tensions over trade – such as between China and the US – and rising interest rates in parts of the West, ‘global financial markets have remained buoyant and appear complacent’.
It said there could be a sudden sharp tightening in financial conditions that could lead to a ‘broad-based correction’ on the markets.
Turning to Brexit, IMF capital markets director Tobias Adrian warned against the UK leaving without a deal.
‘Financial stability risks are reduced the more prepared the financial sector is and the closer the co-operation between the European and UK authorities,’ he said.
‘The private sector should be getting prepared and the authorities should be engaged with the private sector and make clear what the contingencies are during a hard Brexit.’
And IMF managing director Christine Lagarde called on global leaders to work together to de-escalate trade disputes. She said: ‘We need to join hands to fix and modernise the global trade system, not destroy it.
‘We know that trade has helped transform our world by boosting productivity, spreading new technologies and making products more available.
‘And yet we also know that some workers and some communities are heavily affected by the human cost of disruption whether from technology or trade, or both.’
Analysts said US markets have performed particularly well in recent months, in part because of President Trump’s tax cuts. But there are fears that this could go into reverse as the US Federal Reserve raises interest rates to keep a lid on inflation and stop the economy overheating.
Steen Jakobsen, chief investment officer at Denmark’s Saxo Bank, said: ‘The US market is on its own.
So what the IMF is doing is pointing out that, if you exclude the US, the world is already moving to the brink.
Whether we go beyond the brink I think is more an issue of how fast the Fed, and how insistent the Fed is, on having higher rates.’
The Dow Jones Industrial Average fell 3.2 per cent in New York last night while the Nasdaq was down 4.4 per cent. The S&P 500 fell 3.3 per cent.
In Europe, the German market was down 2.2 per cent while the main French benchmark fell 2.1 per cent and Italy slid 1.7 per cent amid ongoing fears over the health of its banks and the government’s plans for a debt-fuelled spending spree.