In London, the FTSE 100 index closed down 5 per cent (having at least recovered from an earlier 9 per cent fall) after official data revealed that the economy shrank between July and September by 0.5 per cent.
It was also the biggest GDP decline since the fourth quarter of 1990. If growth in this quarter is also negative then the country will officially be in recession.
In New York, the Dow Jones industrial average fell 4 per cent within minutes of opening. Wall Street looked set to be heading for another substantial plunge as fears of a global recession and a wave of profit warnings stirred panic among investors and sent world financial markets into a tailspin.
In the UK, the pound slumped to a new six-year low against the dollar after figures from the Office for National Statistics (ONS) showed the economy was contracting faster than feared. The data confirmed that third quarter gross domestic product (GDP) fell for the first time in 16 years and notched the biggest decline since the fourth quarter of 1990.
If growth in the current quarter is also negative then the country will formally be in recession.
Gordon Brown, speaking at his home in Fife today, said he wanted the help of other countries to fight the "global recession".
The Prime Minister said: "This is a global financial recession and we're fighting it every way we know how, working with other countries, trying to get the banks moving here in Britain, trying to help people with mortgages, at the same time increasing the winter allowance for pensioners, the tax cut of £120 going to basic rate taxpayers."
"We're fighting this recession but we need other countries to work with us," he added.
The Footsie pulled back slightly to close down 204.5 points at 3883.4 - a fall of 5 per cent - while Germany's Dax also dropped 5 per cent and the Cac in France finished 4 per cent lower in another traumatic day for global stocks.
Worries that emerging economies were far from immune to the global crisis also gave stocks a pounding, with banks that target growth economies badly hit in the sell-off, including HSBC and Standard Chartered.
Meanwhile, the pound's slide to 1.53 US dollars at its low point today came as experts predicted UK rates would have to be slashed - potentially as low as 2 per cent next year - to bolster the ailing economy.
Today's grim UK GDP figures came as a shock to economists, who had been expecting the UK's economy to shrink by 0.2 per cent.
While the UK is not in a technical recession yet - defined as two consecutive quarters of negative growth - the figures from the Office for National Statistics (ONS) will fuel fears among experts that a recession is now inevitable.
The ONS's initial GDP estimate showed that the manufacturing sector, which accounts for around 14 per cent of GDP, is now in recession.
Manufacturing output decreased by 1 per cent in the three months to the end of September, coming after a 0.9 per cent decline the previous quarter.
The powerhouse services sector, which represents three-quarters of the UK economy, also fell into negative territory, down 0.4 per cent from growth of 0.2 per cent in the second quarter - the biggest drop in 18 years.
The Prime Minister had laid the ground for the gloomy figures, acknowledging earlier this week for the first time that the UK was "likely" to enter a recession, along with other major Western powers.
Other countries across Europe have already registered negative quarterly economic growth readings, such as France.
The UK economy has not been in the red since the second quarter of 1992, before the Black Wednesday plunge in the value of sterling helped boost trade and brought the economy back into the black.
Today's figures showed that annual GDP growth set another gloomy landmark, at just 0.3 per cent, which is also the lowest since the spring of 1992.
The Government came under heavy fire from opposition leaders after the figures were announced.
Visiting a manufacturing firm in Oxford, Tory leader David Cameron said: "This is the day the recession became real.
"We have had 10 years of a Government saying no more boom and bust. We have had 10 years of a Government not putting aside money for a rainy day.
"Well, that rainy day has now come."
Liberal Democrat leader Nick Clegg warned that the country could be on the verge of a new "winter of discontent".
He added that Prime Minister Gordon Brown had "consistently failed" to listen to his party's warning that borrowing was getting "out of control".
"We must now take radical action to restore confidence and take the economy back into the black," he said.
Andrew Sentance, a member of the Bank of England's interest rate-setting Monetary Policy Committee (MPC), suggested today that the risks of a deep and severe recession had increased.
Mr Sentance told BBC Radio Leeds: "We are obviously not sure exactly how this whole situation will develop.
"We have had some quite deep and severe recessions in the UK before and hopefully we can avoid that sort of situation in the current crisis, but the risks of that have increased."
Attentions turned to the prospect for interest rate cuts, with economists forecasting a reduction to 3.5 per cent or even lower by the end of the year.
The possibility of further co-ordinated emergency rate cuts was also on the cards, said experts.
Chancellor Alistair Darling has already pledged to spend his way out of recession, borrowing billions to finance a major programme of public works in an effort to keep the economy moving.
He added today that he was determined to push ahead with his recapitalisation package for banks, even though the plunging stock market means that the shares the taxpayer is acquiring are worth less than the price agreed earlier this month.
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