The FTSE has seen its biggest one-day fall since the collapse of Lehman Brothers in October 2008 in the wake of Britain’s vote to leave the EU. The Bank of England has said it is "monitoring developments closely" and will take "all necessary steps" to support monetary stability.
The FTSE 100 plummeted by more than 500 points in opening trading before managing to regain some ground. The value of the pound fell dramatically overnight, declining 10% at its lowest point, a level not seen since 1985.
“This is simply unprecedented, the pound has fallen off a cliff and the FTSE is now following suit," said Dennis de Jong, managing director of online brokers UFX.com.
"Britain's EU referendum has been a cloud hanging over the global economy for the past few months and that cloud has got very dark this morning.
"The markets despise uncertainty, yet that is exactly what they're faced with this morning. The shockwaves are likely to reverberate for some time and the warning lights are flashing brighter now than ever."
The CBI has said that "the urgent priority" is now to reassure the markets and for the government and Bank of England "to shore up confidence and stability", whilst the British Chambers of Commerce said the immediate priority was "stability and political clarity".
Bank of England governor Mark Carney is due to make a statement later.
Simon Walker, director general of the Institute of Directors, said: "While this may not have been the result that the majority of our members wanted, Britain has voted to leave the EU, and it is now imperative that our political leaders manage the transition as smoothly as possible.
"The weeks and months ahead are going to be a nervy time for business leaders, so they need to know that the government is focused on maintaining stability while a new relationship with the EU is established."
Carolyn Fairbairn, the CBI's director general, said many businesses "are used to dealing with challenge and change and we should be confident they will adapt".
"The choices we make over the coming months will affect generations to come. This is not a time for rushed decisions."
TUC general secretary Frances O'Grady said: "The British people have made their views clear. As the UK prepares to leave the European Union, the first priority now is to protect jobs and defend the living standards of working people.
"The government must urgently set out a plan to defend UK industry and keep British jobs. That means defending the pound and stimulating the economy. Working people must not pay the price for the decision to leave the EU."
