London's premier share index experienced a severe downturn, shedding a staggering £27 billion in a single day as investor confidence was shaken by political uncertainty and a global technology stock retreat.
Market Mayhem: A Perfect Storm
The FTSE 100 closed 1.1% lower, dropping 109 points to finish at 9,698 points. This dramatic fall represents the most significant one-day decline since April, when markets were rattled by concerns over Donald Trump's tariff proposals. At its lowest point during the session, the index was down by 2%, nearly 200 points, before staging a partial recovery.
The sell-off was not confined to London. It began on Wall Street and rapidly spread to Asian and European markets, creating a worldwide wave of negative sentiment. Japan's Nikkei and Hong Kong's Hang Seng both fell by nearly 2% in overnight trading.
Budget Jitters and Sector-Specific Fears
UK investors faced additional domestic pressures. The uncertainty caused by Labour's U-turn on income tax plans contributed significantly to the market turmoil. Heavyweight financial institutions were among the hardest hit, with NatWest falling nearly 4% and Barclays declining by more than 3%.
Banks are particularly concerned about potential tax increases in the upcoming Budget, despite earlier reports suggesting they might be spared. The gambling sector also faced substantial losses, with Ladbrokes owner Entain falling nearly 4% and William Hill owner Evoke sinking 5%, amid speculation that Chancellor Rachel Reeves might target the industry following the income tax policy reversal.
The Global AI Bubble Concern
Beyond domestic politics, a broader anxiety about artificial intelligence stocks gripped global markets. The initial slump in American markets was attributed to worries about US interest rates and growing concerns about an AI 'bubble' in technology company shares.
Dan Coatsworth, head of markets at AJ Bell, commented: "Wall Street gloom has spread across European and Asian markets like a contagious disease. Markets are down across the board as investors fret about cracks in the narrative that's driven the mother of all tech rallies over the past few years."
He added that investors are worried about "rich equity valuations and how billions of dollars are being spent on AI" amidst signs of a fragile jobs market. The Bank of England had previously warned that valuations "appear stretched" and drew comparisons with the dotcom bubble that burst 25 years ago.
The cryptocurrency market felt the pressure too, with Bitcoin falling below $100,000 on Thursday and declining further to under $95,000 on Friday, marking its lowest value since May.
While US stocks opened sharply lower again on Friday, they managed to recover some ground later in the session. The dramatic fluctuations highlight the nervousness surrounding market valuations, particularly for AI-focused companies like chip maker Nvidia, which has been valued at more than $5 trillion (£3.8 trillion) at its peak.
