Thousands of City jobs in peril amid financial turmoil

to regard a UBS takeover as the least bad option for restoring confidence in Credit Suisse. Customers withdrew almost £9billion of deposits a day last week, according to the Financial Times.

Douglas McWilliams, deputy chairman of the Centre for Economics and Business Research, said it was an “immediate” banking crisis that needed a swift resolution.

He said: “There are knock-on effects because all banks have deposits with all the banks. We’ve already got a degree of illiquidity in the system as a result of the banking problems of the last 10 days.”

Although British customers are protected by well-capitalised banks and the UK has so far largely avoided turmoil on the Continent, Mr McWilliams said that continued disruption could make it harder for customers to get a mortgage.

He added: “Banks everywhere will be shoring up their capital. Money they thought was free to be lent may not be.”

Mr McWilliams said the Bank of England is very unlikely to raise rates by more than 0.25 percentage points this week and may not even do that. In the US, the CEBR expects interest rates not to be raised again.

Mr McWilliams said: “We will see that the fight against inflation will have been called off before inflation has been fully beaten. You can’t fight a war on two fronts, and dealing with the banking crisis is more important.”

The rescue efforts follow a disastrous week in which shares in Credit Suisse slumped by nearly a fifth and speculation mounted over its future.

It is feared that failure to reach a deal will cause a further plunge in shares at the bank, which has a balance sheet of more than £470billion, with severe repercussions in markets around the world.

A previous attempt to restore market confidence by injecting $54billion into Credit Suisse with an emergency loan from the Swiss central bank failed to calm nerves on Wednesday.