The news that Northern Rock has asked the Bank of England for emergency loan funding was enough to send the nervous financial markets into a tailspin today.
The FTSE 100 index is down 119.1 points, a fall of almost 2% and on Wall Street, the Dow Jones Industrial Average had tumbled more than 100 points within the opening minutes of trading US investors interpreted the Northern Rock developments as a sign that the sub-prime contagion was spreading to Britain.
The situation was not helped by official data showing an unexpected drop in US retail sales last month.
Northern Rock shares plummeted almost 30% to 455.25p wiping £770m off its stock market value. The shares were already down by 50% this year.
Meanwhile Ernst & Young’s Item Club has said economic growth in the UK may be as much as 1% lower in 2008 and 2009 as a direct result of the credit crunch caused by the sub prime fiasco. Its forecast, based on a "worst case scenario", said there was a chance that the turmoil would be contained within the financial services community. But it added here were "worrying signs" that it could spill over into the High Street and housing market.
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