Millions of people are set for their biggest ever financial hangover in the new year as the squeeze on money markets hits households across Britain.

City analysts gave warning that the last three weeks of November were the worst on record in the credit market as banks refused to lend each other money. Experts predict that this anxiety will be passed on to consumers next month in the form of steep rises in borrowing charges.

Shoppers will spend a record £11.7 billion on their credit cards this Christmas and Peter Hahn, a former managing director at Citigroup, said loans were likely to incur higher charges as banks seek to protect profits. “Banks will be more capital-conscious and wary of risk,” he said. “If you are a borrower, you will have to pay higher rates.”

The fresh warnings were sparked by a $10 billion writedown at UBS, the Swiss investment bank, which most experts believed had already revealed the extent of its losses.

Problems in the City will leave tens of thousands of junior bankers with no bonus this Christmas. A number of banks are freezing recrutiment and culls of jobs related to the credit markets are expected at the worst-hit banks.

The recent financial uncertainties have also damaged Labour’s reputation for managing the economy. A poll for The Times today shows that confidence in the Government’s economic competence has dropped by almost a third since September.

The Populus poll recorded a 16-point drop, to 35 per cent, in the number of people naming Labour as the best stewards of Britain’s economy in bad times as well as good. At the same time, the Tories’ rating on the economy has risen by six points to 34 per cent.

Such sharp changes are worrying for Gordon Brown since economic management has been central to both his personal reputation and to Labour’s electoral success over the past decade.

Rising credit card rates will add pressure to over-stretched households struggling to cope with increased mortgage payments and higher utility bills. British consumers have amassed a total credit debt of £65 billion, according to PricewaterhouseCoopers.

Martin Lewis, of moneysavingexpert.com, the financial website, said: “Will credit card rates rise next year? Yes. People who then try to switch to another card company to avoid paying more face the possibility of being turned down.”

In addition to increasing interest rates, a growing number of banks are turning down credit-card applications in an effort to reduce their exposure to debt. Last year around 33 per cent of applications were rejected. Now, banks reject between 40 and 50 per cent of applications. This will cause problems for the many borrowers who move their debt from one cheap short-term credit card deal to another.

Mark Dampier, of Hargreaves Lansdown, the independent financial adviser, said: “For the first time in a long while consumers are going to get a real shock. Thirty years ago you had to queue for a mortgage. But, in the last 15 years, you have been able to snap your fingers and get credit. That is all going to change.”

There are fears that the credit crunch will have a devastating effect on some families which are already deep in debt. Nearly 5 million people have still not paid off their store and credit card bills from a year ago, according to moneyexpert.com.