Shares plunged and the pound plummeted to a 31-year low as panicked traders reacted to the UK’s vote to leave the EU and the prospect of recession amid months of market turmoil.

The FTSE 100 fell more than 8% within the first few minutes of trading on Friday, with shares in banks particularly hard hit and nursing their biggest falls since the collapse of the US investment bank Lehman Brothers in 2008.

At the opening bell on Wall Street, US shares were down sharply, with the Dow Jones industrial average shedding more than 500 points, down nearly 3%. There were even sharper falls on bourses in mainland Europe, where economists said Brexit would hurt an already fragile recovery.

After the heavy early losses, UK markets were calmed somewhat by David Cameron’s announcement that he would resign, and a pledge from the Bank of England that it would take any measures needed to stabilise markets and the economy. More assurances to step in where necessary followed from the US central bank, the International Monetary Fund and from finance ministers in the G7 group of big economies.

The Bank of England’s governor, Mark Carney, said:“Inevitably, there will be a period of uncertainty and adjustment following this result.”

“But we are well prepared for this,” he added in a televised statement. The Bank will not hesitate to take additional measures as required as markets adjust and the UK economy moves forward.”

The G7 finance ministers said they would consult closely on market moves and financial stability and cooperate as appropriate.

Those assurances calmed jittery markets somewhat and by afternoon trading, the FTSE 100 had erased some of its early losses. It was down 220 points, or 3.5%, on the day to 6,117, with shares in banks and housebuilders among the worst hit. That meant it was actually up for the week as whole.

The moves on currency markets were sharper, with the pound under pressure from worries about the UK’s economic outlook.

The referendum result triggered chaos for anyone seeking to exchange pounds for foreign currency as companies offering a bureau de change service were caught off guard.

Thomas Cook suspended its online currency exchange over fears that it would not be able to fulfil a flood of orders for euros that came in overnight. The firm also put a temporary £1,000 limit per customer on online purchases of foreign currency for collection in its high street shops.

Anyone hoping to change money with Tesco or the Post Office also ran into a brick wall. Customers trying to use the Post Office’s foreign currency service were met with technical difficulties, and Tesco Bank’s exchange site displayed an error message.

Chris Towner, chief economist at the money transfer firm HiFX, said the volume of currency being transferred increased more than sixfold overnight as consumers and businesses reacted to the result by transferring money.

There were also sharp drops for the FTSE 250 index of midcap shares, which is seen as a better barometer than the FTSE 100 for domestic business prospects. The midcaps index was down 7.6% at 16,013.

Business leaders, who had overwhelmingly called for Britain to remain in the EU, urged the government to take “immediate and unambiguous” action to shore up the economy and said ministers needed to guarantee that EU citizens had the right to remain in the UK.

There were warnings for homeowners that the vote to leave the EU could spark a short-term fall in house prices – although lower house prices will be welcomed by first-time buyers struggling to get into an expensive market. Property experts also predicted sterling’s slump could lead to a “Brexit bubble” in the most expensive pockets of the market given that the UK would become cheaper to overseas investors.

There were heavy losses across other European stock markets, with the main index in Germany down almost 7%. In France, the main share index lost more than 8%.

Underscoring the global ramifications for markets of Britain’s leave vote, Japan’s main stock exchange plunged overnight. Tokyo shares lost 7%, the biggest one-day fall since the Fukushima disaster in 2011.

The referendum result was a rude awakening for investors after they had spent recent days buying the pound and UK shares on the back of opinion polls showing a narrow lead for the remain camp. As it became clear that those bets were misplaced, the value of sterling slumped.

Trading was volatile, with the pound initially higher as voting closed on Thursday night and some opinion polls pointed to a remain vote. Those gains evaporated as results came in from across the country and the pound fell as low as $1.32 against the dollar. In afternoon trading, the pound was down almost 8% at just below $1.37, the lowest since 1985. Against the euro, the pound was down around 5%.

With markets braced for further turmoil over the coming days, safer assets such as gold were in high demand. The metal, a long-time favourite investment in uncertain times, soared as much as 8% at one point to hit a two-year high.

City economists warned that a hit to trade and investment from Brexit would spark recession in the UK with repercussions for neighbouring economies. During campaigning, the Bank of England had issued a warning that Brexit could spark recession and the International Monetary Fund predicted a sharp fall in shares and house prices.

Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, commented: “UK voters have opted for Brexit. If fully followed through, this will be an act of economic self-harm with global ramifications.”

But Mark Littlewood, director general of the Institute of Economic Affairs thinktank, highlighted potential economic benefits from leaving the EU. “Today’s vote to leave the European Union presents the UK with a great and exciting opportunity to look outwards to the rest of the world, to take a more internationalist approach and move towards a position of free trade on a global basis, with the EU but also beyond it,” he said.