George Osborne has postponed the sale of the last taxpayer-owned tranche of Lloyds Banking Group shares, blaming “market turbulence”.

The chancellor pledged in last year’s election manifesto to sell the remaining stake in the bank – just under 10% of the company – to the public this spring.

However, he decided to delay the sale following the sharp sell-off in stock markets in recent weeks. The sale will not happen until after Easter, it is understood.

Osborne said: “I want to create a share-owning democracy. It’s also my responsibility to ensure economic responsibility, so with these turbulent financial markets, now is not the right time to have that sale.

“We will sell Lloyds to the British people, but we will do so when the time is right.”

Several indices, including London’s leading share index, entered bear market territory last week. There was panic selling as crude oil prices fell to fresh 13-year lows and investors fretted about China’s economic slowdown and the state of the global economy.

The FTSE 100 index has recovered this week and hit a three-week high of 6012.4 on Thursday before falling back again; global equity markets remain volatile.

The Lloyds share price has fallen to 64p, well below the government’s average purchase price of 73.6p, above which it would make a profit. In October, when Osborne set out details of the Lloyds sale, the shares were trading at nearly 78p, but the price fell towards the end of the year as investors became concerned about the global economy.

A successful sale of the shares at a 5% discount to the reduced price, as planned, would have been criticised as a politically unacceptable giveaway to those with money to invest. But if the shares fell sharply after the sale due to rocky markets, that could also have proved politically damaging for Osborne.

The cut-price sale, to hundreds of thousands of retail investors, was expected to raise £2bn and was billed as the “biggest privatisation for 20 years”. In the 1980s, BT and British Gas were sold for nearly £4bn and £5.6bn.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “This will be a big disappointment for the hundreds of thousands of investors who had queued up for a chunk of Lloyds, but taking a big loss on selling shares when markets are low was always going to be a bridge too far for the chancellor.

“The fall in the Lloyds share price has left them about 10p below what the government thinks it needs to break even, and together with the planned 5% discount and bonus share scheme would have meant the chancellor putting his hand in his pocket, so now he looks to be pinning his hopes on a recovery in markets later in the year.”

The planned sale appeared in question when Lloyds shares ended 2015 at 73.07p after dipping as low as 68p in December, although they traded above the break-even point at certain times during the month.

The postponement is yet another reversal on a manifesto pledge, following Osborne’s change of heart over tax credit cuts in the autumn statement.

Lloyds Banking Group noted that the government had progressively reduced its stake in the group from 43% to 9%, returning more than £16bn to taxpayers at a profit.

A spokesman said: “This reflects the hard work undertaken over the past four years to transform the group into a simple, low-risk and customer-focused bank.

“The timing of any future retail sale is a matter for the government. Our focus is on moving the group forward so that it can continue to be profitable and deliver sustainable returns to all our shareholders.”

Russ Mould, an investment director at AJ Bell, said: “[The chancellor] won’t want any issue that was aiming for substantial involvement from private investors to be a flop. That would damage already fragile sentiment and make it harder for any future privatisations to do well.“Investors will also note that it is not just Lloyds’ share price that is struggling – all banks are floundering. Bank sector indices in the UK, Europe and USA are all trading at their 12-month lows.”