Britain could be hit by a second financial crisis or face years of stagnation similar to that suffered by Japan, the nation's Business Secretary, Vince Cable, warned yesterday as he painted a grim picture of the nation's economic health.
He said the ingredients were still in place for an economic "perfect storm".
Cable admitted the gloomiest scenario was that Britain could plunge into a new financial crisis prompted by the collapse of the Greek and other eurozone economies.
"It is very serious. We have several different problems converging at the same time. Britain's consumer boom has come to an end. On top of that you had a financial system that got out of control with a lot of greed and stupidity. Then you've got a long-term shift in the world economy to India and China and all three of these things have coincided."
Cable defended the Government's austerity package to cut the deficit, but confessed to suffering sleepless nights over the impact of his decisions.
"I don't have any doubt we have to do this," he said.
"But I stay up all night worrying about the decisions I have to make. We are on very dangerous terrain."
Cable also revealed that it had been his decision to refer News Corp's bid for BSkyB to Ofcom last year, which ensured that the bid had not already gone through by the time the Milly Dowler phone-hacking revelations became public.
"There was certainly strong advice against it [referring the bid]. However, I insisted. I wanted to look at the whole issue of plurality."
Cable ruled out ever making a bid for leadership of his party - the Liberal Democrats. He admitted that he felt uncomfortable about going into Government with the Conservatives but insisted that he had a good working relationship with the Tories in his department. "I spent 30 years fighting the Conservatives at grass-roots level [so] I am certainly not going to be palsy-walsy with them. But I do have good working relationships."
He was lukewarm about calls from the Tory right to cut the 50p rate of income tax for top earners, arguing it would be the wrong priority at a time of economic pain.
But he said: "The top rate could go providing there is an alternative."
He cited the party's backing for a "mansion tax" on properties worth more than £2 million ($3.8 million) - a move he said could raise £2 billion a year. Cable's downbeat tone reflects growing anxiety within the Cabinet that the country's faltering recovery could be wrecked by the eurozone crisis and the state of the US economy.
The worries were heightened yesterday by analysis that indicates Britain's structural deficit could be £12 billion larger than previously believed.
He told the conference: "We now face a crisis that is the economic equivalent of war. This is not a time for business as usual, or politics as usual."
Unlike ministers at last year's Conservative conference, he refused to promise relief from the nation's economic woes.
"When my staff saw my draft of this speech, they asked: 'We can see the grey skies, but where are the sunny uplands?'
"I am sorry - I can only tell it as I see it. There are difficult times ahead ... but we can turn the economy around."