Banks lead falls amid fears of new worldwide recession

Global stock markets were hit by yet more turmoil yesterday as problems in the banking sector and Asia stoked fears among traders of another worldwide recession.

In London, the FTSE 100 fell by 1 per cent after a recovery late in the day reduced losses, but it meant that the price of shares was down 5 per cent by the end of the week - with 72.7 billion wiped off the value of Britain's biggest companies.

Concerns in the British markets centred on the banks with concerns about the profitability and strength of the sector emerging again.

Worst hit were two taxpayer-backed institutions - Lloyds and Royal Bank of Scotland - with shares in both down 5 per cent. Lloyds was down 1.4p at 28.4p and RBS was down 1.2p lower at 20.8p. But other banks were hit, too, with Barclays down 2 per cent, or 3.5p, at 150.5p, although HSBC was up 1.4p at 511p.

Chaos in London was matched around the world, with only the Nasdaq in Tokyo rising yesterday.

Worst hit was Germany's Dax, down 122 points, with the Dow Jones on Wall Street dropping more than 40 points as well.

Yesterday, analysts at investment bank Morgan Stanley warned that both the United States and Europe were "dangerously close to recession".

And Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, added: "There is a painful realisation that the rhetoric of the policy-makers has yet to translate into any definitive plans, which could go some way in assuaging investors' concerns.

"There seems to have been little co-ordinated action in an effort either to spur growth or to put in place a road-map for dealing with the increasingly difficult debt situation of many developed economies."

Amid the market chaos, a leading think-tank warned in a report that the UK government's plans for an export-led recovery were failing.

The Institute for Public Policy Research (IPPR) said that, after growing strongly in 2010, exports stalled in the first half of 2011 and volumes in June were lower than in December.

Britain is seventh in the G7 leading economies for new investment and 33rd out of 139 countries for overall infrastructure quality.

It also points out that less than 7 per cent of UK exports are going to Brazil, Russia, India and China - the so-called BRIC economies. IPPR argued that the UK is being left behind.

Tony Dolphin, IPPR associate director, said: "While the debate on the UK's fiscal deficit is important, we must also look to the UK's long-term future. Economic success means looking to what needs to be achieved over the next few decades.

"The UK economy has serious structural challenges that require an active industrial policy. Only then will the UK survive 'the Asian Century'."