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Bank of England economist warns of 'largest-ever' crisis

The deputy governor of the Bank of England has said that Britain is facing its biggest financial crisis in decades.

Consumer trouble with securing credit from banks is the most noticeable effects of the global financial turbulence - which has been affecting markets since last summer.

The problems stem from difficulties with 'liquidity' - the ease with which money can be transferred from place to place.

Nervous financial firms have become less willing to lend to each other in what has been termed a 'credit crunch' - triggering what appears to be an economic slowdown.

Speaking to the Institute of Economic Affairs, Rachel Lomax at the Bank of England said: "This must surely be the largest-ever peacetime liquidity crisis."

The Bank of England decides on the new base interest rate at a meeting each month - and Ms Lomax also hinted that it will face a dilemma over its future strategy.

Cutting the rate makes borrowing for mortgages and personal loans cheaper, which can stimulate economic growth - but can also lead to increased inflation.

Ms Lomax predicted that inflation would "rise sharply" in months to come, with the economy slowing at the same time.

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