Automakers’ debt may be obstacle to federal loansPound, FTSE and DOW all tumble as fears mount over state of global economy
In London, sterling fell by as much as 3.5pc against the dollar to a low of $1.4808, experiencing its worst one day decline against a basket of major currencies since the UK pulled out of the European Exchange Rate Mechanism in 1992.
The pound slumped as the Purchasing Managers’ Index (PMI) showed manufacturing fell in November at the fastest rate since the survey began in 1992, which, combined with poor lending figures from the Bank of England (BoE), prompted traders to bet on a full percentage point interest rate cut from the BoE’s Monetary Policy Committee on Thursday.
The benchmark FTSE100 index was badly hit as a result, closing down 222.52 at 4,065.49, off 5.19pc.
In New York, the Dow Jones Industrial Average slumped by 697.95 at 8,149.09 at the close, down 7.7pc, as the National Bureau of Economic Research – the official US arbiter of business cycles – declared the US economy to have been in a recession since December 2007.
Banking stocks were badly hurt, with Citigroup off 22.2pc and Bank of America down 21pc, as investors began to appreciate the serious impact the downturn will have on the consumer economy, with Oppenheimer analyst Meredith Whitney warning the credit card industry may cut $2 trillion in personal credit lines over the next 18 months.
US Treasury Secretary Hank Paulson said the global economic slowdown was “significant” but “manageable” while Federal Reserve chairman Ben Bernanke said that further interest rates cuts from the current 1pc US base rate were still “feasible” but said that there was no comparison between the Great Depression of the 1930’s and the current situation.
Investors flocked to Treasuries as they continued to seek safe-havens, with British ten-year gilts at a 47-year-low, and their American counterparts at a 53-year low at one stage.
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