£50bn wiped off FTSE 100 over global recession fears

A sell-off has swept through markets as mounting convictions of an imminent global recession sparked a flight to safety and a dash to dump anything linked to growth.

Global stock markets, oil and metal prices all fell sharply, while the euro sunk to its lowest level against the dollar in two decades and sterling suffered heavy losses.

Even the price of gold dropped 1.8pc, with investors instead rushing to buy Treasuries and the dollar. The yield on 10-year US government debt dropped below 3pc, a sign of investor appetite for safe haven assets.

It came as the Bank of England warned: “The economic outlook for the UK and globally has deteriorated materially.”

In its bi-annual Financial Stability Report, policy makers wrote: “Higher prices, weaker growth and tighter financing conditions will make it harder for households and businesses to repay or refinance debt.

“Given this, we expect households and businesses to become more stretched over coming months. They will also be more vulnerable to further shocks.”

The pound fell 1.4pc to $1.1930 – its lowest level since the outbreak of the pandemic in March 2020.

In the US, the yield curve – the difference in yields between long-term and short-term government debt – inverted, a sign that investors are worried about an imminent recession in the world’s biggest economy.

The FTSE 100 crashed 2.8pc, wiping around £50bn off the UK’s biggest companies as turmoil spread through markets.

Energy and commodity stocks were among the worst hit: BP dropped 7pc, Glencore lost 8pc, and Shell fell 8.5pc. The steep falls reflected a 7.5pc drop in Brent oil to $103 and large drops in metal prices. Copper declined 4.3pc to $7,655 per tonne on the London Metal Exchange.

In the US, the S&P 500 and Dow Jones Index both dropped over 2pc in early trade as markets reopened following the US Independence Day holiday.

In total, $13 trillion was wiped off global stock markets in the first six months of the year, the worst first half on record. It came as inflation surged around the world in response to Russia’s invasion of Ukraine. Investors now fear central banks will be unable to avoid triggering recessions as they hike interest rates to reign in price rises.

The Bank of England is widely expected to raise interest rates yet again when its Monetary Policy Committee meets next on August 4, with Governor Andrew Bailey hinting last week that policy makers could opt for a 50bp rise.

The Royal Bank of Australia on Tuesday raised interest rates by 50 basis points, the third month it a row the central bank has hiked borrowing costs.

John Stoltzfus, chief investment strategist at Oppenheimer & Co., told Bloomberg: “With the first half of the year moving into the rear-view mirror investors can’t help but wonder what lies ahead in a year that thus far has wrought heightened levels of uncertainty, disruption and dysfunction that has rattled asset class values across the spectrum of the good, the bad, and the ugly.”