David Miliband, the Foreign Secretary, has activated an early warning system to monitor economies at risk of suffering political and social unrest triggered by the global credit crisis, The Times has learnt.

Teams of economists working within Britain’s embassies worldwide have been told to assess the risk of social unrest within their borders as a result of the global recession and then to report back to London.

The Foreign and Commonwealth Office is worried that the next chapter of the downturn will involve unrest in fragile economies as asset values, employment, export markets and international supply chains are hit by the fall in demand.

With the collapse of Lehman Brothers in September last year, stock markets and financial regulators realised the extent to which the world’s banking industry was intricately interwoven — with the demise of one lender capable of dragging down another. Fears now exist that if a key country collapsed as a result of political turmoil, the global supply chain and exports could be at risk.

It is understood that the Foreign Office is anxious about economies whose debt has been downgraded to junk status. Debt issued by countries such as Argentina, Pakistan, the Seychelles and Sri Lanka have been downgraded to well-below junk status over the past few months, Standard & Poor’s, the rating agency, said. Some of these countries are key suppliers to British companies, with textile factories in Sri Lanka and Pakistan providing goods for much of the UK high street.

It is understood that the Government broadly believes that the International Monetary Fund, the European Union and possibly the British taxpayer may have to step in to support fragile economies in order to protect export markets and the manufacturing supply chain.

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