The Ftse 100 plunged back below the 6,000 mark, falling 156.5 points to 5,982.2, despite Mr Osborne offering his assurances that the UK is “about as strong as it could be to confront the challenge our country now faces”.
On the currency markets, sterling plunged to a fresh 31-year low of $1.3151 , before rallying back to a 3.4% fall to $1.321.
Yields on 10-year government bonds also slid below 1% for the first time.
Britain’s vote to leave the EU continued to wreak havoc on global markets, with Germany’s Dax plummeting 3% and the Cac 40 in France plunging 2.9%.
Heavyweight financial stocks, housebuilders, and travel firms bore the brunt of the sell-off on the London market, with easyJet sitting at the top of the biggest fallers after warning over profits.
Shares in easyJet were down 22% or 293p to 1020p after the firm said it would take a £28m hit following two months of turbulence and warned that Brexit would have a negative impact on the airline.
Royal Bank of Scotland briefly plunged to its lowest level since 2009, before finishing more than 15% down or 31p lower at 174.3p.
At one stage RBS and Barclays saw shares suspended for five minutes as automatic circuit breakers sprung into action when their values dropped by over 8%.
Barclays shares finished 17% lower, a drop of 26.7p to 127.2p.
The biggest risers on the Ftse were Randgold Resources up 665p to 8035p, Fresnillo up 97p to 1483p, AstraZeneca up 94.5p to 4126p, and Royal Dutch Shell B up 39p to 1922.5p.
The biggest fallers were easyJet, Barratt Developments down 85.4p to 354.4p, Barclays, and Travis Perkins down 272p to 1348p.