Britain's top share index fell again as Britain struggled with political and economic uncertainty after last week's vote to leave the European Union. Banks, housebuilders and budget airline easyJet were hit hard.
Some investors took refuge in companies producing gold, a safe-haven asset, with Fresnillo <FRES.L> surging 9 percent to a three-year high and Randgold Resources <RRS.L> gaining 8.5 percent.
The FTSE 100 <.FTSE> fell 2 percent to 6,017.17 points by 1137 GMT. The domestically focussed FTSE 250 index <.FTMC> lost nearly 6 percent, reaching its lowest level since late 2014.
"These uncertainties pose significant risks for the investment outlook," said Larry Hatheway, chief economist and head of multi-asset portfolio solutions at GAM.
"Against the backdrop of an already slowing UK economy, Brexit anxiety could precipitate a large enough reduction in consumer and business spending to tip the UK economy into recession."
Brexit anxiety could precipitate a large enough reduction in consumer and business spending to tip the UK economy into recession
British financial stocks declined the most, with the sector index <.FTNMX8350> falling 7.7 percent to a seven-year low. Royal Bank of Scotland <RBS.L> dropped 25 percent and Barclays <BARC.L> 18.7 percent, hit by broker downgrades and by JP Morgan's cutting its rating on all domestic banks. The mid-cap bank Shawbrook <SHAW.L> plummeted 30 percent.
"The UK's vote to leave the EU will drive tectonic plate shifts in European bank investing. We move to a slow growth/modestly recessionary scenario for UK banks," analysts at Jefferies said in a note, downgrading RBS to "hold" and Barclays to "underperform".
Investors seemed to ignore Chancellor George Osborne's assertion on Monday that the British economy remained strong, his first public statement on the Brexit vote.
Shares in easyJet <EZJ.L> slumped 23 percent to a three-year low and were on track for their biggest daily drop in 12 years after it issued a third-quarter profit warning. British Airways owner IAG <ICAG.L> fell 12 percent after Goldman Sachs cut its shares to "neutral".
"A vote by Britain to leave the EU can hardly help a company like easyJet, particularly seeing as the fall in the pound will put Britons off travelling overseas. Rain, strikes and the impact of the EU referendum have all damaged profits," said Nicholas Hyett, equity analyst at Hargreaves Lansdown.