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Gonzalo Baranda, investment marketing manager, said the main aim of governments in the short term should be to steady the financial system using monetary and fiscal policy tools.

Monetary policy measures at the recent G20 summit in Washington designed to confront the major challenges facing the global economy could include further cuts in interest rates, he said.

“Now that inflation is of less concern, deflation may become the next big problem, and US interest rates could fall close to zero," he said.

"However, these rate cuts need to be passed in full to the end consumer if they are to have the desired impact, and for this to happen, a further recapitalisation of the banks is required."

The UK’s approach to recapitalising the banks, which involved part nationalisation of the banking system, is far more “fair” than the US Troubled Asset Relief Programme, as UK banks are more accountable for their past mistakes, Mr Baranda said.

However, both models could lead to a higher future cost of borrowing for the governments and a likely further depreciation of the pound due to the increase in the UK budget deficit, he said.

Mr Baranda added that governments’ more expansive fiscal policy to stimulate demand may struggle because consumer spending is hard to boost when unemployment is increasing, house prices are falling and consumers are more inclined to save.

He said government plans to raise debt to boost expenditure were fraught with problems as well, asking: “Who is going to buy this new debt and at what price?"