In the first trading since the historic decision by the Standard & Poor's ratings agency to strip the US of its cherished AAA credit rating, shares on Wall Street plunged by as much as 5 per cent yesterday.
In London, the FTSE-100 index of leading shares ended lower for the seventh day in a row, having lost more than 800 points, or 13.7 per cent. By contrast gold, a traditional safe haven in troubled times, hit yet another all-time high, at more than $1,700 an ounce.
Challenging ministerial claims that their economic policy is bolstering investor confidence, London shares are at their lowest since July 2010, just after George Osborne's emergency Budget.
Investors have been especially spooked by remarks from David Beers, head of sovereign credit ratings at Standard & Poor's, who said: "We don't anticipate a scenario at the moment in which the US would quickly return to AAA."
Mr Beers confirmed that there is a one-in-three chance the US could be downgraded again.
More bad news came from the Organisation for Economic Co-operation and Development (OECD), the club comprising the world's advanced economies, which warned of a further slowdown in the global economy. The OECD warned that growth rates in the US, Japan and Russia have peaked, while Britain, the eurozone and others are in a "continued slowdown".
The OECD's "leading indicator" for the UK – a signal about how the economy might progress over the next six months – fell for the sixth month in a row, and at an increased rate in June with the suggestion that the economy will continue to flatline until next spring. It comes as the Bank of England prepares to reveal its latest forecasts for inflation and growth tomorrow.
The Bank is expected to follow the Office for Budget Responsibility in admitting that its projections have not been borne out by reality.Reuse content