KEY POINTS:
Every taxpayer in the UK has lost almost 40,000 ($103,000) since the onset of the credit crunch, as plunging house prices and the savage sell-off in stock markets have obliterated 1.2 trillion of Britain's national wealth.
The impact of the property downturn and the slide in shares has
wiped out the equivalent of a full year's economic output, according to analyst Dharval Joshi at City of London bank RAB Capital, 38,700 for every one of Britain's 31 million taxpayers.
"We're only halfway through; there's more destruction to come before we stabilise," said Joshi.
With public anger at senior bankers, regulators and politicians growing as the scale of the damage becomes clear, the Prime Minister, Gordon Brown, will use a speech today to demand tighter international regulation of banks. He will argue that the crisis was exacerbated because no regulators, no ministers and few banking executives knew what assets had been sold to whom.
The Prime Minister will try to build a consensus around curbs on irresponsible banking practices later this week at the World Economic Forum in Davos, the annual gathering of tycoons and politicians. The Commons Treasury select committee will also seek to hold the industry to account over short-selling bank shares when it cross-examines five leading hedge fund managers on Tuesday.
Sterling declined sharply on the foreign exchanges last week, amid fears that the Government's insurance scheme to protect banks against losses on 'toxic' assets could expose the taxpayer to billions of pounds of additional liabilities.
Figures revealed on Saturday that the economy contracted by 1.5 per cent in the final three months of 2008.
Rapid declines in wealth alarm economists, because consumers tend to respond by cutting spending, exacerbating recession. Danny Gabay of City of London consultancy Fathom said consumers had previously boosted their spending power by borrowing against their houses, but by the last quarter of 2008, mortgage borrowers were paying down equity, with a potentially devastating impact on spending.
"If you bought your house for 100,000 and some bloke in a pinstripe suit tells you it's worth 200,000, then you feel like you're being conservative if you only borrow an extra 25,000," said Gabay.
Joshi said Britain's housing boom and resulting bust meant the economy was likely to take longer to recover than the United States', where consumers have more of their savings tied up in shares, which tend to see recovery faster.
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