Britain is facing a bout of social trauma as millions of overstretched families are hit by the financial fallout from another year of economic pain, the Bank of England's Deputy Governor suggested today.

Charles Bean highlighted the danger of stress and social upheavals for many families as the still deepening economic downturn worsens financial strains on vulnerable households.

"It's going to be a tricky period. Household real income is very low. That will make it difficult for households and there are difficult social issues that will arise," he said.

Professor Bean's stark warning came after grim official figures last week revealed that growth in the economy stalled in the second quarter of the year, bringing a 16-year winning streak of rising living standards to a shuddering halt.

Earlier today it emerged that the International Monetary Fund had cut its growth forecasts for the world economy. The IMF now expects world growth this year of 3.9 per cent, down from the 4.1 per cent estimated in its World Economic Outlook last month, and has trimmed its outlook for growth in 2009 to 3.7 per cent, down from 3.9 per cent.

The gloom extended to the currency markets as the pound hit a two-year low against the dollar this morning, falling to $1.8407.

Speaking at a conference of top central bank chiefs and economists in the US mountain resort of Jackson Hole, Wyoming, Prof Bean said that Britain and the world were gripped by the worst economic difficulties for 40 years.

There was little sign so far of any let up as fuel and food prices keep inflation soaring and the global credit crunch undercuts growth, he noted.

"Last year this was a financial crisis that we thought with a bit of luck would be over by the time of Christmas, but it has dragged on for a year and looks like it will drag on for some considerable time further yet," Professor Bean told BBC radio.

"It's fair to say that if you look at the shocks impinging on us this is at least as challenging a time as back in the 1970s.

"Some people have said it's as big a financial shock as the Great Depression [of the Thirties], and as far as the oil shock goes the rise in oil prices is in the same order of magnitude that we had to deal in the 1970s."

The Deputy Governor's warning over the social toll as Britain teeters on the brink of recession will set alarm bells ringing in Downing Street, with the economy already voters' number one concern and unemployment starting to rise sharply.

The Bank has made clear before that, with interest rates its only tool, there is little or nothing it can do to ease the consequences of economic downturn on those who have left themselves overextended or exposed by piling up excessive debts.

County courts in England and Wales issued 28,658 repossession orders between April and June as banks and building societies clamped down on borrowers who fell behind with mortgage payments. The number of homes seized back by lenders was up 24 per cent over the same period since 1992, at the end of the last recession, alarming judges.

Experts have sounded warnings that numbers of people losing their homes and getting into dire financial straits over debt, as well as the scale of family break-ups, will multiply as the downturn continues and unemployment climbs. Numbers out of work and claiming jobless benefits have now risen for six months in a row, by a total of 70,000 between February and last month.

At the same time, Prof Bean said that the Bank was alert to the danger of further setbacks to the economy if the credit crunch leads to further casualties among big financial institutions.

"We have our fingers crossed but there is the recognition there is still quite a long way to go yet," he said.

"There are periods when markets look like they are getting better. Then another grenade explodes, another bout of fear of sustainability of some financial institutions, maybe intervention by the authorities. It has been very much ebb and flow ... "

He said that the mood among his counterparts gathered in Jackson Hole was "very much one of financial caution as regards the next year."

The Deputy Governor sought to strike a more reassuring note, however, arguing that should a recent slide in the cost of crude oil and other commodities continue there was hope that the economy could return to growth next year.

"On the assumption commodity prices remain stable and if anything fall back, then inflation should drop back as we go through next year. One would hope that the conditions in credit markets should gradually start to improve, and those two factors will help to ensure growth will start to pick up as we go through next year.

"But the important thing is people realise this is just a transitory period of subdued of growth and we will get through the other side and growth will resume to more normal levels.

"Hopefully we can go back to something like the steady growth that we experienced over the past decade."

Explore Economics

• Pre-Budget Report 2009

• Budget 2009

• World Economic Forum in Davos

• The Times MPC

Times Recommends

• Toyota recalls 437,000 cars including Lexus
• Myners says bonuses are bleeding pension funds
• Japanese company faked safety reports on seats