George Osborne warned on Thursday that Britain faced the most dangerous economic times since the 2008 global financial crisis, and warned that the recovery would take longer and be harder than he had hoped.
Osborne admitted that there were wide disagreements on the global stage about how best to deal with the crisis, but claimed that the "bold steps" taken by the coalition government had made Britain a "safe haven in the debt storm."
The chancellor says those who accuse the government of cutting 'too fast, too hard' have been proved wrong. Shadow chancellor Ed Balls accused Osborne of being in "complete denial".
France's President Sarkozy will be meeting Germany's Chancellor Merkel next Tuesday in order to discuss the growing financial crisis within the Eurozone.
World markets have been experiencing some of the most volatile trading since the 2008 banking crisis. The was a small rebound on Thursday morning, despite news this week of low global growth expectations, the US credit rating downgrade and the Eurozone's debt crisis.
Pressure in the Eurozone continued to mount, with France joining Italy and Spain as the latest target of speculation about its debt burden. Rumours about a potential downgrade of France's credit have triggered recent poor trading in the Eurozone, despite all three major rating agencies reaffirming France's Triple-A rating.
French President Nicolas Sarkozy ordered his key ministers back from their holidays for an emergency meeting as concern grew over growth rates and France’s ability to manage its debt. Nervousness about the strength of the French banking sector and the stability of France’s AAA credit rating has increased over the past few days, and a French government official told the Financial Times that Sarkozy's move "may have added oil to the fire".
Fears about the health of French banks and their exposure to debt led to a tumultuous day of trading on Wednesday, with Société Générale and Crédit Agricole closing down by 15 per cent and 12 per cent respectively and BNP Paribas down 9 per cent. SocGen, which performed worst of all the major French banks in recent stress tests, saw its shares continue to fall throughout morning trading on Thursday, losing another 4.5 per cent of their value before midday.
Trouble in the Eurozone could also have an impact closer to home, as people due to retire this month could see their pension income end up almost 20 per cent lower than expected due to global economic turmoil.
Those looking to retire and start withdrawing a pension could suffer due to nervousness on the part of major investors. Many investors have shifted their focus onto relatively safe gilts, pushing prices up and yields down. This is likely to result in pension incomes falling as annuity rates are cut.
In addition, the FTSE 100 share index has fallen by 17 per cent over the last month.
The two factors combined have led to an especially negative effect on a wide variety of private sector pension schemes, which depend upon stock market returns.
Final salary schemes remain the safest type of pension in the current climate. Although around 50 per cent of final salary pensions are typically invested in equities, the damage caused by losses in underlying assets will be a problem for employers and trustees rather than individual retirees.
While there are few alternatives available to those looking to retire in the near future, there are some steps that can be taken to safeguard long-term pension plans. Investors approaching the final five years prior to retirement should be looking to shift pension assets out of shares into safer bonds, limiting their exposure to market volatility.