Deepening economic crisis 'may trigger family breakdown'

Millions of families will be put under severe strain by the worst economic crisis since the 1970s, one of Britain's most powerful bankers warned yesterday.

Charles Bean, deputy governor of the Bank of England, said families are facing 'difficult social issues'.

He didn't spell out what these will be but they are likely to include bankruptcies, home repossessions and a widespread struggle to pay rising household bills.

Financial problems can have a devastating knock-on impact on families, leading to higher divorce and suicide rates and emotional turmoil for children.

'It's going to be a tricky period,' he said. 'Household real income is very low. That will make it difficult for households and there are difficult social issues that will arise.'

One of the biggest problems is the combination of soaring inflation and poor pay rises, which is plunging many families into a financial black hole.

The consumer prices index measure of inflation has jumped to 4.4 per cent, more than double the Government's target of 2 per cent.

Mr Bean, a widely-respected economist, said the world's financial crisis could 'drag on for some considerable time'.

Speaking to the BBC at a conference of central bankers in Jackson Hole, Wyoming, he said the initial view was that the credit crunch would continue for six months, and end at Christmas 2007. But the barrage of bad news, which he compared to 'grenades' exploding, meant problems were likely to continue for much longer.

'There are periods when markets look as if they are getting rather better and then another grenade explodes; another bout of fear of sustainability of some financial institutions; maybe intervention by the authorities,' he said. 'The mood here is one really of considerable caution as regards the next year.

'We've got our fingers crossed that things will improve but there is the recognition that there is still quite a long way to go yet.'

Mr Bean, 54, who took over as the Bank's deputy governor last month following the resignation of Sir John Gieve, said the current situation is 'at least as challenging a time as back in the 1970s'.

He added: 'It is a pretty substantial financial shock. Some people have even said that it is as big a financial shock as the Great Depression.'

Last week, official figures showed that after 16 years of growth the British economy has ground to a halt, leading to predictions of a recession.

During the second quarter of the year, GDP (gross domestic product) growth was 0 per cent, according to the Office for National Statistics.

The Tories said the figures were proof that 'Brown's bubble has burst' after years of boasting about a record number of consecutive quarters of economic growth.

Yesterday, a report suggested that the International Monetary Fund has cut its

forecasts for world growth because of the downturn. Official sources told the news agency Reuters that it has lowered its world forecast for this year to 3.9 per cent, down from 4.1 per cent last month.

The Washington-based organisation projects 2009 growth of 3.7 per cent, compared with 3.9 per cent previously.

Liberal Democrat Treasury spokesman Vince Cable said: 'Charles Bean's comments highlight the fact that the British economy is to a large extent in freefall and there's not a great deal the Government or the Bank of England can do about it.

'Ministers need to focus their efforts on protecting those at greatest risk from the worsening economic situation.'

Bosses preparing to wield the axe

Soaring numbers of employers are planning to sack workers to cope with the downturn, legal experts warned yesterday.

Employment lawyers and legal helplines said business is booming as many bosses seek advice on how to make their staff redundant.

Lawphone, the legal helpline of insurance group Allianz, said it received a record number of calls last month.

Law firms, including Travers Smith, are also reporting a surge in interest in how to get rid of employees without breaking the law.

Ian George, senior solicitor at Allianz Legal Protection, said: 'It started off in the transport and logistics sectors and has seen rapid growth across the UK. It clearly reflects the economic environment.'

Official figures, published earlier this month, revealed concern among many workers that they could lose their jobs.

Between April and June, the number of unemployed jumped 60,000 to 1.7million, while those claiming Jobseeker's Allowance increased by 20,100 to 864,700 in July. It has been rising since January.

A report published today by the business lobby group CBI also reveals it expects
1.83million - an extra 187,000 Britons - to be unemployed by the end of 2009.