Northern Rock panic could harm Gordon Brown

Experts said the bank's troubles were likely to cause consumers to cut spending and could bring a sudden end to rises in house prices.

They also warned that the reputations of the Prime Minister and his Chancellor Alistair Darling were hanging in the balance in the weeks ahead, as it becomes clear that the banking crisis is having a far greater impact on the UK than expected.

A total of £2billion has now been withdrawn by worried customers from accounts at Northern Rock and insiders expect the high street bank to be sold within weeks.

Peter Spencer, economic adviser to the respected Ernst & Young Item Club, said he had slashed his forecast for the UK economy, adding that the crunch would cause a "general malaise" throughout the UK.

"The chickens are coming home to roost rather quicker than any of us had thought," he said. "What worries me is the effect on confidence. The consumer is very vulnerable and if things continue like this there could be a whole series of knock-on effects on the housing market, on high-street spending; the whole shebang."

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