Markets in nosedive as slump fears take hold

New York's Dow Jones Average, the world's most important stock indicator, slumped 362.32 points to 8671.34.

That followed heavy falls on the FTSE 100 in London — down by more than 4.5% at 4038.28 — spooked by a particularly gloomy outlook for the UK economy from the Bank of England's monetary policy committee. This also sent sterling into freefall — down 6.24 cents at $1.6356.

Growing fears of recession were given substance on Wall Street as American giants AT&T, the telephone company, and Boeing, the defence and planes group, reported poor figures. Drugs giant Merck said it was slashing 7200 jobs and one of America's struggling legion of banks, Wachovia, posted quarterly losses of $24 billion (£14.7 billion).

Leading the shares in steep decline in London were the international miners, for whom a recession will see the end of the metals and commodities booms. Kazakhmys, Vedanta Resources, Antofagasta, Xstrata and BHP Billiton all tumbled by 10% or more.

European stocks followed with the DAX in Frankfurt off 4% and the CAC in Paris down almost 5%. They had followed falls overnight of nearly 7% on the Nikkei in Tokyo and of more than 5% on the Hang Seng in Hong Kong.

Hours after last night's official admission by Governor Mervyn King that Britain is slipping into recession, the Bank of England released the minutes of the MPC meeting earlier this month. This showed all nine members backing the half-point cut co-ordinated with other the major central banks. The rate-setters backed a cut in rates to 4.5% despite inflation escalating way beyond target to 5.2% in September.

"The outlook for economic activity in the United Kingdom had deteriorated substantially, reflecting a sharp monetary contraction," they recorded.

"Output growth had slowed to a halt in the second quarter, business surveys pointed to further weakening during the second half of 2008 and the labour market had softened. Consumer spending growth had slowedwhile business and dwellings investment had declined.

"Equity prices had fallen, and the further tightening in credit conditions would also weigh down on domestic demand growth."

Economists were today predicting rates will be cut to as low as 2.5% as the inflation rate falls in the coming months.