Global stock markets have fallen sharply as investors panicked that the world economy could slip back into recession.
London's FTSE 100 Index closed 3.4% down - its biggest fall of the year - wiping nearly £50 billion from the value of its shares.
There was a similar bloodbath on international markets as New York's Dow Jones was nearly 3% lower in early afternoon trading, Frankfurt's Dax closed more than 3% lower and the CAC 40 in Paris fell nearly 4%.
The latest collapse in share prices comes amid rising fears that Italy and Spain, the eurozone's third and fourth largest economies, may need bailouts. And widespread worries over the United States' economic recovery have been fuelled by figures showing a slight rise in the number of people who applied for unemployment benefits.
The plunge in global markets is further bad news for Chancellor George Osborne, who has faced increasing pressure over the pace of Britain's economic recovery.
Robert Chote, chairman of the Office for Budget Responsibility (OBR), said the watchdog's growth forecast of 1.7% - made in March - was likely to be missed.
GDP increased by a lacklustre 0.2% in the second quarter of 2011 after consumers reined in spending. And UK fears were further heightened by a survey which showed the manufacturing sector - the main driver of growth in recent months - contracted in July for the first time in two years.
The growth fears led the Bank of England to hold interest rates at their record low of 0.5%.
A Treasury spokesman said: "This is a time of uncertainty in the international economy. Because of our difficult decisions to reduce the deficit and tackle our debts, Britain has been stable during this time. The economy is growing and creating jobs."
It is understood that the Government is monitoring the global markets closely and the Chancellor is receiving regular updates.