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In the City, the FTSE 100 index closed the day down by 3.6%, taking £72.1 billion off the value of its shares.
The 266-point drop is its worst performance in a day since the end of March 2020, when the UK had only just entered its first lockdown.
Meanwhile, the FTSE 250, which includes smaller companies, lost 3.2% of its value, wiping £13.5 billion off shares.
Forget Black Friday; today has been renamed Red Friday after the colour of share price screens as stocks slump globally on fears over a new Covid strain
Russ Mould, AJ Bell
The UK announced on Thursday it will stop all direct flights from South Africa, Namibia, Zimbabwe, Botswana, Zimbabwe, Lesotho and Eswatini due to a surge in cases identified with the new mutation.
The collapse in London was led by airlines and Rolls-Royce, which makes plane engines.
British Airways owner IAG and cruise line Carnival had both lost more than a tenth of their market value. EasyJet, Tui and Wizz Air were not far behind.
But less obvious victims of the new travel restrictions were also among the heavy losers.
The worry that office workers might switch back to working from home and ditch their lunchtime supermarket sandwiches hit Greencore Group, which makes those sandwiches for the supermarkets.
However Greencore’s chief executive announced plans to step down on Thursday afternoon, which might also be affecting shares.
Investec which has its headquarters in South Africa, was also a major loser, while online supermarket Ocado soared on the news, as investors bet on a potential new lockdown.
“Forget Black Friday; today has been renamed Red Friday after the colour of share price screens as stocks slump globally on fears over a new Covid strain,” said Russ Mould investment director at AJ Bell.
“Headlines calling it the ‘worst-ever variant’ have caused investors to panic and dump shares in travel-related stocks for fear that we’re going to see tough travel restrictions once again.
He added: “The drop in the oil price (is) the market’s way of saying it is worried about a reduction in economic activity, something which also explains the slump in metal prices.
“Markets are clearly speculating that a rapid spread of a more brutal Covid strain could once again derail the global economy. Banking stocks were also weak as they are closely tied to economic activity.”
But he also added that the drop in commodity prices might slow down global inflation, which has been running high in recent months.
In Germany, France, the US and Asia, some of the main markets had also dropped significantly by the end of play on Friday.