BRITAIN'S eight leading banks and building societies are to be put through a simulated financial doomsday scenario to see how their balance sheets cope with a collapse in the economy on a scale which has not been seen for nearly a century.

Stress tests by the Bank of England were announced yesterday and will examine how prepared the firms are for a steep contraction in gross domestic product (GDP) of a kind not seen since the aftermath of the First World War.

In the scenario, which is not a forecast of economic conditions in the United Kingdom, interest rates would also rise to 4.2% from their current historic low of 0.5%.

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This would put pressure on the property market, as well as heavily-indebted households and businesses.