Stock markets and sterling plummeted in the wake of the unexpected announcement that British productivity was down 0.5 per cent in the last three months – a far larger fall than had been predicted.

There were also warnings of more expensive petrol and diesel as oil cartel Opec slashed production by 1.5 million barrels a day in a move that is likely to see retailers put prices up again at the pumps.

Britain's FTSE 100 stock market index finished the day five per cent down at 3,883 points – slipping at one stage to nine per cent below opening – wiping £48.9bn from the value of London's leading shares.

New York's Dow Jones index plunged five per cent on opening before recovering slightly later last night. Almost every stock market around the world finished down, the Japanese Nikkei falling 9.6 per cent.

The pound at one stage slipped to a five-year low of 1.52 against the dollar – in June it was trading at more than £2 to the American currency – before finishing at 1.58, down 2.9 per cent over the day. It was its biggest one-day drop against the dollar since 1992.

Yesterday's fall in gross domestic product (GDP) was far worse than had been expected and marked the first time in 16 years that Britain had fallen into negative growth. It was also the biggest GDP decline since the fourth quarter of 1990. If growth in the current quarter is also negative then the country will formally be in recession.

Chancellor Alistair Darling said the latest GDP figures meant that the economy "will move towards recession" – with the result that investors pulled out of the market fast.

Economic adviser Roger Bootle, of Deloitte, said Britain was heading into a "deep and prolonged recession" while Prime Minister Gordon Brown said he did not "like" the Opec decision and hoped falling oil prices would be passed on to consumers.

"I don't like the cut in production but we can see that the oil price has halved. It was 150 US dollars, it's now 65 US dollars," he said.

"This is the volatile world that we're living in – we're having to deal with the consequences."

Yesterday's grim GDP figures came as a shock to economists, who had been expecting Britain's economy to shrink by 0.2 per cent.

While the UK is not in a technical recession yet – defined as two consecutive quarters of negative growth – the figures from the Office for National Statistics (ONS) will fuel fears among experts that a recession is now inevitable.

The British economy has not been in the red since the second quarter of 1992, before the Black Wednesday plunge in the value of sterling helped boost trade and brought the economy back into the black.

Yesterday's figures showed that annual GDP growth set another gloomy landmark at just 0.3 per cent, which is also the lowest since the spring of 1992.

Liberal Democrat Treasury spokesman Vince Cable said: "This is a statistical confirmation of what we already knew, which is that the economy is now in recession.

"There are indicators from all around the country of people being laid off and factories not continuing and I fear it is going to get a great deal worse.

"This is indisputable proof that we are now in recession and the big policy debate is how we are going to stop this recession gathering momentum and becoming a deep slump."

Last night Yorkshire Minister Rosie Winterton said: "In common with all other regions, ours is facing difficult times as a result of global uncertainty. However, our regional economy is now more diverse and mixed than in the past, which makes us more resilient.

"Businesses that are innovative and invest in the skills of their people are taking the right approach at this time. That is why I will be working with business communities in the region to make sure they have the skills to meet the challenges posed by the global economy."