The Treasury and the Bank of England have promised fresh measures to blunt the impact of the Covid-19 virus on the economy, after currency traders delivered a brutal verdict on the global response to the crisis so far.

Sterling tumbled to its weakest level against the US dollar in more than three decades. A flight of speculative money into the haven of the dollar led sterling to crash through $1.20 against the US currency.

Andrew Bailey, the new governor of the Bank of England, warned Britain faced an economic emergency caused by Covid-19 and further measures would be needed to prevent widespread disruption turning into destruction.

On another day of frenzy on the global financial markets, shares on Wall Street were down by 10% on news that Ford and General Motors were halting production until at least the end of the month. The pound ended trading in London at about $1.1750, a level not seen since 1985, other than during the quickly reversed “flash crash” of 2016.

Rishi Sunak, the chancellor, said he was alive to the urgency of finding new ways to support jobs and incomes, amid criticism from MPs on the Treasury select committee that not nearly enough had been done to deal with the expected sharp rise in unemployment and squeeze on living standards.

Global equity markets suffered further hefty losses as:

• The International Labour Organization said the initial impact of Covid-19 would be to add almost 25 million to global dole queues.

• Steve Mnuchin, the US treasury secretary, was forced to deny telling the Senate that US unemployment could rise from under 4% to 20%.

• Oil prices fell 8% with the cost of Brent crude hitting its lowest level since the aftermath of the invasion of Iraq in 2003.

• The euro rose against the dollar and the pound after the European Central Bank announced a €750bn (£706bn) asset-purchase programme.

• The Dow Jones industrial average – a key gauge of share prices in the US – fell below its level on the day of Donald Trump’s inauguration in January 2017 and has now dropped 10,000 points in a month.

Sunak said the government was looking to change the law to enable ministers to bail out large companies.

“There may well be an argument for the taxpayer, through the state, to step in and provide some short-term liquidity or other financing support to a private business,” he told MPs.

The chancellor’s comments came amid concerns that a prolonged crisis could spell disaster for the steel and automotive industries.

Honda, BMW and Toyota became the latest carmakers to close European plants, leaving Jaguar Land Rover as the last major car company still making vehicles in the UK.

Work at plants that make more than 1m of the UK’s annual output of 1.5m cars halted, with more than 20,000 staff sent home temporarily.

The trade body UK Steel said: “In the absence of further major government interventions, a prolonged shutdown of the UK economy will quickly become terminal for the steel industry, leaving tens of thousands of workers without a job to support their families.”

Bailey sought to curb the global stock market rout by telling those who were making money by short-selling company stocks to “just stop”.

In short-selling, traders borrow a company stock with a view to selling it, hoping to buy it back later at a lower price and pocket the difference.

“Anybody who says, ‘I can make a load of money by shorting’, which might not be frankly in the interest of the economy or the interest of the people, just stop doing what you’re doing,” Bailey told BBC News in an interview.

Bailey said in an earlier press conference that events had moved on rapidly in the week since the Bank cut interest rates and eased capital requirements on banks as part of a coordinated stimulus with Sunak’s budget.

“Those were big steps we and the government took a week ago. They were the right steps,” Bailey said. “It is unquestionable, though, that things have moved on a lot in the ensuing period.”

Bailey said one big and worrying development was the impact of the coronavirus crisis on large companies as well as on the small and medium-sized businesses that were the focus of the joint Bank-Treasury action a week ago.

The Bank has subsequently announced new measures to guarantee loans and ease the financial pressures on companies that need help while large chunks of the economy are locked down.

“We want to minimise the economic disruption and don’t want a persistent effect that destroys the supply capacity of the economy,” Bailey said.

“We are facing an emergency. I didn’t think that three days into the job I would be sitting in a virtually empty building. But we are ready to do whatever we have to do.”

The Bank’s monetary policy committee is expected to cut interest rates from 0.25% to a record low of 0.1%, and resume the electronic money creation process known as quantitative easing, when it meets next week.