Consumer confidence has slumped to a record low following chaos in the financial markets, months of misery in the property sector and spiralling household bills.
Gordon Brown was forced to defend his stewardship of the economy while attending the G8 summit in Japan yesterday, while the FTSE 100 index at one stage dropped 2.7 per cent to herald a technical "bear" market.
The Government's worries will be compounded today by the report from the Nationwide suggesting that months of economic uncertainty, a weakening housing market and higher food and fuel costs have combined to make consumers feel increasingly negative.
Bradford & Bingley, the troubled mortgage lender, was among the hardest-hit of the stock market victims. Shares in the bank, which is trying to raise £400m through an emergency funding issue, fell by 19 per cent as institutional and private investors cut their losses. It has now lost more than 90 per cent of its value in a year.
Last night it was reported that Britain's big six banks – HBOS, Abbey, Barclays, Lloyds TSB, the Royal Bank of Scotland and HSBC – were to stage a rescue operation in a bid to avert another Northern Rock crisis. It is understood they have agreed to buy a large chunk of B&B shares after pressure from the Financial Services Authority.
The Chief Secretary to the Treasury, Yvette Cooper, rejected comparisons with the collapse of Northern Rock, telling Channel 4 News: "This is not about liquidity problems that we saw as a result of the global credit crunch kicking off last year, when Northern Rock's business model was clearly unsustainable. This is a very different situation and is really a matter for the shareholders to make decisions about their investments."
The Council of Mortgage Lenders has reported that mortgage approvals were down 44 per cent in May. The group also pointed to a "steep decline" in remortgaging. Shares in the estate agent Savills slumped 18 per cent as sales in its core London markets fell 45 per cent, while the group said – in what some took as a veiled profits warning – that the state of the market made it "very difficult" to predict how the full year would pan out.
Speaking in Hokkaido yesterday, the Prime Minister admitted that Britain was facing a "difficult economic time", but insisted that it was not a fault of his leadership. "Every country in the world is facing a difficult economic time because of what has happened in oil prices and food prices," said Mr Brown. "I think I am the right person to take people through these difficult times."
Nationwide's consumer confidence index dropped to just 61 during the month, down from 65 in May and 93 in June last year, to hit a new record low for the sixth consecutive month.
The fall was driven by fears the economy will deteriorate further, with 53 per cent of people expecting the situation to get worse – more than double the proportion who felt the same 12 months ago. Just 16 per cent think their household income will be higher in six months' time, down from 21 per cent in May.
Fionnuala Earley, Nationwide's chief economist, said: "This month's drop in confidence is to be expected, given the recent run of bad news. With reports of rising inflation rates, weaker economic growth and further falls in house prices, it is not surprising that people are feeling much less optimistic."
The Nationwide survey showed general optimism over employment levels, but that is likely to be dented by news that the industrial group Siemens is to cut almost 17,000 jobs worldwide.
The housebuilder Persimmon also revealed that it was to cut 1,100 jobs – a quarter of its workforce – as its sales fell by 31 per cent in the first six months of the year, reducing revenues by more than a third. The company added that this was "undoubtedly the most challenging period in Persimmon's recent history".
Ted Scott, a fund manger at F&C Investments, said the UK economy has only just begun to slow after a robust 2007. "If a recession does become a reality – and the risks lean that way – there could be further to go," he said.
Meanwhile, a report by the Parliamentary Ombudsman, Ann Abraham, may pave the way for victims of the collapse of the insurer Equitable Life to claim billions of pounds in compensation from the Government.Reuse content