The UK’s top stock market plunged by more than 6% at the start of the first new trading week since Donald Trump shook the world economy with his tariff announcement.
There were fears this morning the world could be facing another Black Monday – the day in 1987 when global stocks crashed 22.6%.
Since the US President’s speech on Wednesday – which he dubbed Liberation Day – markets have declined at a speed and scale unseen since the beginning of the Covid pandemic.
This morning, the FTSE 100 in London fell 6.1% before stabilising at a level around 4.9% lower than before, while European stocks also fell sharply.
Market reactions were even more serious in Asia, where the Hong Kong exchange had its worst day in 28 years and Taiwan’s TAIEX index had its biggest drop ever.
All eyes will be on the New York Stock Exchange when it opens at 9.30am local time (2.30pm UK time).
Trump announced new tariffs of between 10% and 50% on imports to the US from almost every country around the world last week, essentially reshaping the global economy in one fell swoop.
The UK’s Chief Secretary to the Treasury Darren Jones said yesterday: ‘Globalisation, as we’ve known it for the last number of decades, has come to an end.’
Prime Minister Keir Starmer is due to speak about the government’s response in a speech this afternoon.
What does the stock market fall mean for UK?
People who directly own stocks and shares will know what it means for them: their investments will be worth less, at least for the time being.
But the most common way for people in the UK to be exposed to the stock market is through their pension pot.
Defined contribution pension plans go up and down according to financial markets, but largely rely on safer investments such as government bonds which are far less vulnerable to shocks like last week.
Those bonds have gone up in value since the tariffs announcement as many investors see them as a safe haven, meaning the stock falls have largely been offset.
Meanwhile, defined benefit pension schemes guarantee a fixed income and are not directly impacted by the stock market.
However, the health of the stock market also indicates something much broader: the health of the wider British economy.
Falling stocks mean investors have less faith that UK businesses will turn a profit after Donald Trump strong-armed them into dealing with a transformed system of international trade.
The fact that stocks are falling in markets around the world demonstrates just how seismic a change this is for the planet.
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Bath University Professor of Economics Chris Martin told Metro the global economy may have changed for good even if Trump reverses his plans.
He said: ‘Even if it all turns out it was a Dallas-style bad dream and the whole thing gets called off, it’s still a nasty shock.
‘It makes you aware that, hang on a moment, he could change his mind again. So it could well lead to some leading economies changing their strategy.’
One potential outcome is more countries adopting a ‘protectionist’ attitude, meaning they introduce restrictions to international trade to make them less vulnerable to the whims of an unpredictable president.
If that is the case, Prof Martin argued, the declines in the stock market over the past week could lead to a permanently lower level.
He said: ‘Firms would be less willing to invest, because markets become smaller, because the world is a riskier place, so you’d expect lower levels of investment, which would feed through into higher prices and lower levels of employment.’
What happened in 1987’s Black Monday stock market crash?
On October 19 1987, stock prices around the world plummeted with almost no warning.
Within hours, the losses on the stock market were estimated at around $1.71 trillion.
The rapid collapse, prompted by a build-up of market volatility, led to fears of a new Great Depression – but recovery was relatively quick in most areas.
Prof Martin said he hoped comparisons to Black Monday were accurate, since it turned out to be ‘a very temporary blip’.
He said: ‘The more scary comparison is 2008 where there were equally big drops in the stock market, and to some extent, to early 2020 where there were massive drops in the stock market.’
A new Black Monday ‘would imply it would dissipate in a week or so’, adding he was ‘less optimistic than that’.
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