The governor of the Bank of England, Mervyn King, has warned that the US sub-prime mortgages crisis poses more risks for the UK’s financial system.
He also revealed that it was Chancellor Alistair Darling who decided not to support a Northern Rock takeover bid.
Mr King told the BBC he had advised the chancellor that governments should not provide financial help to one company so that it could take over another.
The documents acknowledge the fact – pointed out by Alan Greenspan, the former US Federal Reserve chairman, to this newspaper last month – that Britain is almost uniquely vulnerable to the financial crisis.
The problem is twofold: Britain is heavily reliant on the City for its growth, but financial services are now in trouble.
Meanwhile, UK households are more heavily indebted than almost any of their overseas counterparts, and their interest rates are starting to rise.
The economic powder keg underneath Britain’s foundations is of an alarming scale. Household indebtedness is double what it was a decade ago.
Seven out of 10 homes repossessed in recent months were owned by people who bought them with the help of so-called “sub-prime” mortgages – designed for buyers with bad credit records.
Research shows that sub-prime mortgage lenders are responsible for more than 70 per cent of 7,000 homes repossessed in the last three months.
There are no official figures for how large the sub-prime market is in the UK, but property experts estimate these loans account for less than 10 per cent of the total number of outstanding mortgages.
However, they have increased in popularity in recent years as people, finding it increasingly difficult to get on the housing ladder, are prepared to take high-cost loans to buy their own homes.
Sub-prime lenders tend to charge far higher interest rates because of the home owners’ higher risk of default.