One of Britain’s most powerful bankers gave a grim economic forecast last night that the country was only midway through the housing slump and that unemployment was set to soar.

John Varley, group chief executive of Barclays, painted a bleak outlook, saying that property prices could fall by a total of 30 per cent from their peak to the end of 2009 while unemployment could rise to 7.5 per cent of the working population. The previous lending policies’ of banks, in which 100 per cent mortgages and beyond were approved, were “madness”, he said, admitting that banks were partly to blame for the current recession.

It was time they showed “humility”, and said “sorry” to customers for their role in the sharp economic downturn and they needed “to take their share of responsibility”.

Mr Varley said, in an interview to be broadcast on Sky News tonight that there was still more pain coming for homeowners: “Our view was that from the top to the bottom, you would see a fall of something like 25 to 30 per cent. I suspect we’re about halfway through that at the moment. I mean that slow-down, the negative house price inflation started in 2007, it’s accelerated in 2008.

“We’re probably about halfway through that period, so in other words we’ve got another 10 to 15 per cent to fall between now and the end of next year. That would be our assessment.”

He said that the level of mortgage borrowing over the last ten years in which customers were offered loans far greater than their incomes would come to be seen as out of line with normal practice.

He explained: “I think the last 10 years will be seen as an anomaly rather than a normalcy.

“The loan to value ratios, as you know, were available at 100 per cent or 115 per cent or 125 per cent of the value of the house.” The lending policies of the last decade would be viewed in time as “madness”.

Mr Varley’s bleak prediction extended into the jobs market.

He said: “Our view is that unemployment will rise. Unemployment is likely to go north of 7 per cent over the course of the next 12 months or so, it might be as high as 7.5 per cent.

“I think an additional 700,000 people unemployed over the course of the next 12 months is certainly possible to contemplate.”

He added: “The unemployment tends to be a lagging feature, a lagging indicator and it is possible that the unemployment will be worse in 2010 for a period than in 2009.

“Our expectation is that the UK economy will contract during the course of 2009, but our expectation is that the UK economy will grow again in 2010.

“As soon as that starts happening then of course the prospect for people who are out of work moves very quickly and we’ve got to ensure that by behaving responsibly as a banking industry, we can support that trend.”

The UK economy caught a cold after the credit crunch began in the US and Mr Varley said that equally, once house prices began to recover in America, then the worst of the credit crunch would be over. He also said that banks had to act with “humility” and accept their part in the economic downturn.

He explained: “I think if you look at the players who were involved in what’s happened to the world, I think there are quite a lot of players. They would include central banks, they would include governments — but they would certainly include the banks. And the banks have to be prepared to have the humility to acknowledge that and accept it and to say sorry. “They need to take their share of responsibility, we need to take our share of responsibility as an industry,” he said, adding “the banks have to be at the table when the reconstruction is discussed and agreed”.

Explaining why his bank rejected a government handout he emphasised the bank’s interests outside the UK.

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