Traders took fright on Wednesday as a slew of poor data and results from across the globe dampened any attempts at optimism.
Oil price falls hit several big names in the sector on the leading FTSE 100 index and warnings from the International Monetary Fund (IMF) that the world could see a depression not seen since the 1930s.
As a result, the leading index closed the day down 193.66 points, or 3.3%, at 5,597.65.
In Europe, the Paris CAC 40 ended down 3.7%, while the DAX 30 in Frankfurt ended down 4.2%.
David Madden, market analyst at CMC Markets UK, said: “Equity markets in Europe are firmly in the red as the warning from the IMF yesterday has finally sunk in.
“The group anticipates the world economy could contract by 3% this year.
“The update was in stark contrast to the forecast it issued three months ago, when it projected worldwide growth of 3.3%.”
He added: “Much of the ground that European equities have made since mid-March was fuelled by rescue schemes, and more recently, the levelling-off of the rate of infections, but traders are facing up the prospect of a painful economic downturn.”
The markets also took a hit as the US indexes were dragged down, following poor data Stateside, showing a 5.4% slump in industrial production in March, the worst contraction since 1946.
Connor Campbell, financial analyst at SpreadEx, said: “Couple that with retail sales falling by a sharper than forecast 8.7%, not to mention the various recession warnings that have been coming thick and fast, and the US markets were perhaps forced to swallow a bitter dose of reality following last week’s hopeful, naive rebound.
“If investors are now willing to pay attention to all this alarming data, they haven’t been too keen in recent weeks, Thursday’s US unemployment claims and Friday’s Q1 GDP reading from China could make waves.”
The drag from plunging oil prices also took its toll, as the price of a barrel fell as demand slumped to levels not seen for 25 years.
A barrel of Brent crude dropped 7% to 27.54 dollars a barrel.
In company news, the oil price falls hit Royal Dutch Shell’s “A” shares down 99p, or 6.9%, to 1,346p and BP shares fell 21.4p to 299.7p.
Car insurer Hastings said it would be ignoring the warnings from the Bank of England to hold back dividend payments during the Covid-19 lockdown.
Shareholders appeared pleased with the payout, closing up 7.8p, or 4.27%, at 190.3p.
But at heating and plumbing products giant Ferguson warned its shareholders that the impact of Covid-19 has “significantly increased” in the last 10 days.
However, the pain was tempered by bosses, saying demerger plans for its UK Wolseley business remain on track to be completed later this year. Shares closed down 118p, or 2.27%, at 5,070p.
And online casino and bingo operator 888 warned that profits halved last year over higher gaming duties. Shares closed down 12.8p, or 9%, at 129.2p.
The biggest risers on the FTSE 100 were Ocado up 58p at 1,542.5p; Flutter up 158p at 7,600p; United Utilities up 9.4p at 888.2p; Severn Trent up 22p at 2,299p and Sainsburys up 1.3p at 201.2p.
The biggest fallers were Melrose down 11.82p at 84.38p; EasyJet down 66.6p at 603.2p; Royal Bank of Scotland down 10.65p at 9.26p; IAG down 20.3p at 217.8p and JD Sports down 47p at 511.6p.