Warning: Britain faces new recession.

Anyone I know who is seeking a mortgage is being asked to pay very large interest rates unless they are able to come up with equity of 20-30% of the property price. Which is, I suppose, the definition of a "credit crunch."

But it is this fact which is leading the world's central bankers to state that Britain is heading for a second recession, the infamous "double dip" downturn.

Figures from the Bank of England yesterday confirmed that the banks and building societies remain reluctant to lend to any but the most secure of businesses and home buyers. Mortgage approvals barely improved during May, remaining stuck at a little over 43,000 – some way above the nadir of 27,000 last winter, but under half of their normal level. Analysts at Capital Economics said the figures were "consistent with house prices falling at double-digit annual rates".

Detailed data on changes to the money supply indicated that relatively little of the £100bn pumped into the economy by the Bank of England through its policy of "quantitative easing", akin to "printing money", is finding its way as yet into meaningful lending by the banks to small businesses and first-time buyers.

A small improvement in consumer confidence was registered last month, and there is plenty of evidence of more buyer interest at estate agents and of shoppers continuing to shop. However, for as long as the banking system remains reliant on public funding and unwilling to offer credit, little of this still-fragile optimism will be seen in hard purchases of "big ticket" items such as houses, cars and other goods linked to house purchase, such as electrical appliances and furniture.

Part of the problem here is the banks still want to package together debts and loans and to sell them on to someone else, only this time they want to be able to say that the people who owe the money have a large amount of their own equity tied up in the properties and are, therefore, unlikely to default.

But, as long as the banks continue with this practice, then we are unlikely to see any improvement in consumer confidence and Brown can pump as much money as he likes towards the banks but nothing will happen.

Figures to be released by the Office for National Statistics are likely to reveal that the downturn in the UK in the first quarter of the year was even more severe than first thought, though most economists think the worst of the slump is over. A CBI survey published yesterday said more than 95 per cent of banks and building societies expected their bad debts to rise over the next few months. Such write-offs will join the existing "toxic assets" on the banks' balance sheets and make them even less willing to take on riskier lending – the much feared "negative feedback loop".

Until banks start lending again, at rates which people find affordable, then the credit crunch continues.

Nothing Brown has so far proposed addresses that fact. And he also needs to address the banks ability to sell off it's debts to other companies, the very practice which led to the sub prime mortgage fiasco in the first place.

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Tags: Economy, United Kingdom, Brown, banks, mortgages