Panic returned to world financial markets today and share prices tumbled as big investors cashed in before a global economic downturn. Confirmation that Britain is in the first stages of recession only added to the sense of fear.

Wall Street plunged at the opening bell, the Dow Jones Industrial Average falling almost 500 points in early trading and the Standard & Poor’s 500 falling by around 4 per cent as investors ploughed into Treasury bonds before a slight rally by lunchtime.

The losses in Europe were also severe. The FTSE 100 closed down 5 per cent, with banking stocks once again leading the way, and France's Cac-40 finished 4 per cent down after a rash of profit warnings.

Russia suspended trading on its stock market until at least Tuesday after the market lost more than a tenth of its value, hitting its lowest levels since late 2004.

Gordon Brown, speaking at his home in Fife today, insisted that he needed more help from around the world.

“We’re fighting this recession but we need other countries to work with us,” the Prime Minister said.

“This is a global financial recession and we’re fighting it every way we know how, working with other countries, trying to get the banks moving here in Britain, trying to help people with mortgages, at the same time increasing the winter allowance for pensioners, the tax cut of £120 going to basic rate taxpayers.”

Before the European markets tumbled the tone had already been set in Asia. Japan's Nikkei lost 9.6 per cent after the electronics giant Sony slashed its earnings forecast, taking the index below the psychologically important 8,000 barrier for the first time in more than five years. In a further blow for Japanese exporters, the yen hit a 13-year high against the dollar.

“The global financial crisis has been constantly spreading and worsening, creating a severe shock to global economic growth,” the Chinese Premier Wen Jiabao told a meeting of more than 40 Asian and European states in Bejing.

Despite angry noises from the White House and Downing Street, the oil producers' cartel Opec, meeting in emergency session, agreed to cut oil output by 1.5 million barrels per day in an attempt to halt the steep slide in the price of oil. But the price of US crude dropped again anyway, losing almost 7 per cent to $64 as economic gloom overshadowed the cut.

Other commodity markets, from copper to zinc, sugar and coffee were battered by sharp selling, good news for consumers in industrialised nations, but bad news for emerging market economies.

Official figures showed that the UK economy shrank by 0.5 per cent in the three months to September, the first such contraction since 1992, when John Major led the Tories to an election victory and Leeds beat Manchester United to the First Division title. A negative figure had been expected, but not quite such a bad one.

Visiting a manufacturing firm in Oxford, the David Cameron, the Conservative leader, was in no doubt as to where the blame lay – especially for the state of government finances. “This is the day the recession became real," he said. "We have had 10 years of a Government saying no more boom and bust. We have had 10 years of a Government not putting aside money for a rainy day. Well, that rainy day has now come.”

Officially, the UK will not be in recession until there have been two successive quarters of negative growth, although no one now doubts that there will be. The deputy governor of the Bank of England, Charles Bean, gave a particularly gloomy prognosis, saying that Britain’s economy was still in the early days of weakness.

“This is a once-in-a-lifetime crisis, and possibly the largest financial crisis of its kind in human history,” Mr Bean told the Scarborough Evening News.

As the scale of the crisis hit home, giants of the car-making, airline and technology industries battened down the hatches. China, Japan and 11 other Asian nations agreed to set up an $80 billion war fund to fight what Alan Greenspan, the former US Federal Reserve chief, called a “once-in-a-century credit tsunami”.

The French car giants Peugeot-Citroen and Renault ordered huge production cuts at their plants around Europe, while both Sony and Air France-KLM issued profits warnings.

And in the United States, Chrysler announced that it would be laying off a quarter of its 18,500 white-collar staff. The carmaker is already in talks with a number of competitors, including General Motors, Nissan and Renault, for a possible merger.

At their meeting in Vienna, Opec oil ministers had been hoping to stem the slide in crude prices and their 1.5 million BPD cut looked sufficiently deep to do that. But Brent North Sea crude for December delivery slumped to $61.08 per barrel, the lowest point since March 2007.

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