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The head of Barclays bank has predicted that economic gloom will deepen, with house prices to fall in total by 30%.

John Varley's warning comes ahead of the latest UK unemployment figures on Wednesday, where the number of jobless is expected to rise sharply.

A new survey suggests household debt is on the increase, and the value of sterling has fallen against the euro.

But EU governments have been told they cannot break the financial rules in order to boost their economies.

John Varley, group chief executive of Barclays, painted a bleak outlook in an interview on Sky News, during which he criticised mortgage borrowing levels over the last decade.


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

He warned the UK was only "halfway" through the slump with house prices set for even greater falls.

He said: "Our view was that from the top to the bottom, you would see a fall of something like 25 to 30%.

"I suspect we're about halfway through that at the moment. I mean that slowdown, 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% to fall between now and the end of next year. That would be our assessment."

His bleak prediction extended into the jobs market.

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

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

Mr Varley was speaking ahead of the release, on Wednesday, of the latest UK unemployment figures.

The number of jobless could rise sharply, with some forecasters warning the total of those out of work might hit two million or more.

Debt increase

Meanwhile, a survey commissioned by the Bank of England has suggested an increase in the number of households struggling with debt.

Many said they had less to spend after paying household bills and had saved less than they expected.

Nearly 2,500 households were interviewed for the survey in late September and early October.

More respondents were finding their debts to be a burden than in any similar survey since the mid 1990s.

The bank says after a period of growth and low inflation, it has seen an abrupt change in the circumstances facing British households.

Sterling's lows

International investors' lack of confidence in the UK economy has seen the the pound hitting new lows against the euro: last week one pound bought as little as 1.11 euros, the lowest ever.

But the government appears to have ruled out action to shore up sterling.

On Sunday the chief secretary to the Treasury, Yvette Cooper, told the BBC the government was not planning to step in to support the pound.

She said attempts by previous administrations to target exchange rates had been unsuccessful.

Instead the government would continue to try to keep inflation under control and support the economy, she said.

"We have never had a policy of targeting the pound. Our policy has been to target inflation and that, I think, has been the right way. It has paid off over the last 10 or 11 years."

Huge deficits

But the government has been warned that any action it takes to support the UK economy must not break EU rules.

European Central Bank President Jean-Claude Trichet told the Financial Times that the EU's "stability and growth" pact must not be allowed to fall apart.

The pact has rules designed to stop EU member states from racking up huge budget deficits and national debt in order to boost their economies.

"We would destroy confidence if we blew up the pact," he said.

Mr Trichet is said to be worried that fiscal indiscipline - such as governments printing large amounts of currency in order to boost spending - could threaten "already fragile" economic confidence.