RECORD numbers of bankruptcies and continued stagnation in the housing market yesterday were stark reminders to Gordon Brown of the mounting economic challenges that Labour faces in its third term.

Official figures showing the number of people sliding into personal insolvency at its highest level for three decades fuelled anxieties over prospects after a spate of bleak economic data this week.

Personal bankruptcies in England and Wales reached 13,229 in the first three months of the year, marking a 28 per cent rise on the same period last year, and the fifth quarterly increase in a row.

Individual bankruptcies have now risen by 83 per cent over the past three years, Citigroup noted.

The figures stoked concern that growing financial stresses on Britain’s households, caused by rising interest rates and the housing market downturn, will undermine consumer demand and growth in the economy.

The news coincided with the latest barometer of property market conditions from the Halifax, Britain’s biggest mortgage lender, which reported that house prices have been flat since January.

House prices remained unchanged in April, cutting the annual pace of house price inflation to a near four-year low of 7.8 per cent, the mortgage lender said.

Changes in the law have made it easier, and more appealing, for people with money worries to choose bankruptcy as an escape route from their problems. But economists believe that the latest rise in insolvencies is also evidence of financial strains on some households.

The jump in bankruptcies follows other recent figures showing a sharp rise in court actions for home repossessions by mortgage lenders.

PricewaterhouseCoopers, the accountancy group, estimates that three quarters of the personal bankruptcies declared last year were a consequence of consumer debt, rather than because of small business closures and other factors.

As the Chancellor resumed work yesterday after the election, there was some comfort for him from the housing market as Halifax put its weight behind a growing view that conditions are stabilising.

Latest indicators suggest that the decline in housing market activity has stopped. “As a result, we appear to be entering a period of broad stability,” said Martin Ellis, Halifax’s chief economist.

The Royal Institution of Chartered Surveyors also reported that housing market activity was firmer during the first quarter.

There was another dose of brighter news in the insolvency data, from the Department of Trade and Industry, as the number of companies becoming insolvent fell in the first quarter to its lowest level since 1989.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts