Labour rating plummets as City turmoil takes its toll

Amid voter dismay at the market turmoil, the party's lead on economic competence was wiped out and it slumped 13 points behind the Conservatives overall.

It followed a day of turmoil yesterday which saw the FTSE 100 crash more than 200 points as the global banking crisis deepened.

Markets were hit by the dramatic collapse and rescue of Bear Stearns, one of Wall Street's largest investment banks which was brought to its knees by the credit crunch.

The findings of the ICM survey caused consternation among ministers who fear the economy will snuff out any hope of an early fightback in the polls by Gordon Brown.

Chancellor Alistair Darling was updating ministers on attempts by the Bank of England, the Treasury and the Financial Services Authority to avert panic in the markets.

He was also writing to members of the International Monetary Fund, G7 countries and the Financial Stability Forum to call for agreements on international action on transparency and disclosure, better risk management and action on credit rating agencies.

Government sources indicated there would be no attempt by the Cabinet to intervene in decisions being taken by the regulatory authorities in an attempt to settle the City.

The markets today faced another rollercoaster ride today: a mixed session-in Asia was followed by a nervous start in London where the FTSE 100 index opened 90.7 points up.

The Prime Minister was continuing to urge calm in what he described as "global financial turbulence" caused by the fall-out from American subprime lending.

But analysts have warned today's early gains in the FTSE were nothing more than a "slight correction" and said Bear Stearns may not be the last bank to fall.

Claire Collingwood, of CMC Markets, said: "We are still looking at the other investment banks in the wake of Bear Stearns and there are worries that something similar could happen to one of them. The market is very cautious."

Mr Brown will next week hold talks in London with French president Nicolas Sarkozy. The British leader's calls for a stronger European financial stability regime will be top of the agenda.

However, the mood among ministers was resigned to sitting out the crisis and hoping that voters will decide that the problem was not the fault of the Government and could not be avoided, given the state of the international markets.

That hope looked optimistic as today's survey for the Guardian confirmed that Labour is suffering massive-damage. It showed Labour down five points to 29 per cent, the Conservatives up five to 42, and the Liberal Democrats unchanged on 21.

It is the third survey since last week's Budget to put the Conservatives nine to 14 points ahead, and the worst showing for Labour since Margaret Thatcher won the 1987 election.

If repeated at a general election, David Cameron could win power with an overall majority of more than 100.

The detailed questions suggested that the economy was a key reason for the slide in the Government's fortunes. In January, ICM found Labour had a seven-point lead as the best party to run the economy but that has become a Conservative lead.

Asked who they most trusted to run the economy, four in 10 voters chose David Cameron and his shadow chancellor, George Osborne. Only 32 per cent opted for Mr Brown and Mr Darling.

In the Commons yesterday Mr Brown went out of his way to stress that he believes Britain's economy is well prepared to deal with "hard" economic times sparked by the credit crunch.

But Mr Cameron argued the country had been left more vulnerable than others because Labour had overspent.

"Does the prime minister now regret that we're the one country that failed to prepare for the downturn by putting money aside in the good years?" he demanded.