The consumers are borrowed to the hilt and the banking sector is no longer able to provide the consumer with credit. Unless they want to see a major collapse in the financial sector, the government will have to fund the difference and borrow a lot more."

The banks too are flying into the storm with very little put aside as insurance. British residential property loans have done fantastically well during the past decade, arguably making lenders complacent.

Little wonder: only the most disorganised or unlucky borrowers will default on loans with 6 percent rates of interest when the asset is rising in value by 10 percent a year or more.

Taking a 25 percent fall in property values as a baseline and making assumptions based on their differing books of business, Merrill Lynch analyst Manus Costello calculates that these reserves will have to increase substantially. He estimates that HBOS, which has a fairly high percentage of specialist and buy-to-let loans and has grown its book recently, thus leaving it with higher loans to value, might have to raise its rate of loss provisioning to an annualized 63 basis points in order to rebuild reserves in two years.

Bradford & Bingley would need an annualized 122 basis point charge under the same scenario. Things are less severe for the large clearing banks, though their provisioning needs would rise in greater proportion if the fall in property prices was 30 or 35 percent, which is by no means out of the question.

B&B's bankers were recently left holding over 70 percent of its 400 million pound rights issue to raise capital after many existing investors declined to increase their exposure to the lender.

Banks could be under similar pressure to classify commercial property loans as impaired in coming years, according to analysts at Morgan Stanley led by Martin Allen.