So anyone arguing that we can’t have a recession or a house price crash because employment is high, is simply wrong.

As if to prove it, now JP Morgan has doubled its previous estimate for City job losses to 40,000. That would be 5% of all City staff, the biggest cull since the dot-com bubble burst.

As The Times puts it – ‘that’s 12 empty Gherkins’…

So far roughly 2,500 City jobs have been cut, reports The Times, so if JP Morgan’s 40,000 estimate is correct, there’s a lot more pain to come. And not just in the City. Discount retailer, Ethel Austin, went to the wall yesterday, which could see a large number of the group’s 2,800 staff laid off depending on the outcome of a rescue deal.

600,000 people are facing bankruptcy

Certainly, there’s no sign of the credit crunch easing yet. If Gordon Brown hoped he could say anything to make a difference when he met banking heads at Downing Street yesterday, he’d have been sorely disappointed this morning. Halifax is raising the rate on its two-year tracker – it’ll now track at 1.99% above the base rate, from 1.49%.

Meanwhile, a report by TDX Group suggested that around 600,000 people might end up facing bankruptcy or taking out an IVA (bankruptcy-lite, as it’s sometimes called), because they won’t be able to roll over their debts. TDX says that’s about double the number that took such action last year. The group based its findings on the fact that around 400,000 people remortgaged or took out new debts to pay off old loans last year – with tighter credit conditions, the same escape route won’t be open this year.

Britain’s not the only place feeling the squeeze. The first big domino to topple, the US, still sees no bottom in sight for its collapsing housing market. The number of homes entering foreclosure proceedings in March more than doubled year-on-year, to nearly 235,000. About 40% of foreclosures result in actual repossession.

Spain is feeling the squeeze

And even in Europe, car manufacturers saw their worst month in four years, with sales in western Europe falling 10.4% in March, with Spain particularly bad, down 28.2%. This was partly down to changes in tax rules on scrapping older cars, but the country is also in serious trouble due to the end of its construction boom.

Earlier this week, data showed that Spanish service sector confidence was at its lowest on record, while activity in the sector is contracting, according to the latest purchasing managers’ index. Sales of ‘big-ticket’ items such as washing machines fell 32% last month.

It goes to show just how much consumer activity comes to rely on house prices in countries that have experienced property bubbles. However, while things look bad for Spain, the country does have a few advantages. For one thing, its government has been pretty careful in recent years – the country still runs a budget surplus, and so has been able to promise large spending on public works to help economic activity. It’s also dishing out a €400 tax rebate in July.

Then there’s the fact that Spain’s banks have largely avoided the problems associated with off-balance sheet vehicles and creative finance which have plagued many other countries. As William Underhill points out in Newsweek, this isn’t necessarily because they are any better run. It’s because in Spain, tighter regulations meant that banks couldn’t keep this sort of stuff off their balance sheets, and have thus stuck to older-fashioned ways of making money.

As Willem Buiter of the London School of Economics puts it: “there’s some advantage to being slow when the speedy crowd all go off the cliff together.”

The outlook for the UK is far worse

Of course, the Spanish banks will have a hard enough time with consumer spending dropping off and all those home loans turning bad. But anyone who thinks that Spain is in trouble should be far more worried about the UK. Our banks are much more exposed to the global credit crisis; our government has spent itself into a corner; and our housing market is about to go the same way as Spain’s.

With the euro at record levels against the pound, don’t be surprised if the Spanish start looking for holiday homes over here long before we’ve got enough money to start picking up bargains on the Costa del Sol again.

By the way, just before I go, I wanted to let you know about a special offer for Money Morning readers. Amid all this upheaval, it’s hard to know what to invest in, but you should certainly pick up plenty of ideas at the Master Investor 2008 investment show. Speakers include Pizza Express entrepreneur Luke Johnson, Nigel Wray, Mark Slater, fund manager Jim Mellon, as well as share tipster Tom Winnifrith and short-seller Evil Knievil AKA Simon Cawkwell, while executives from more than 100 growth companies will also be attending.

The organisers are offering Money Morning readers a 70% discount (£14.99 against a price of £49.99) on the event, which takes place on Saturday 26th April from 9am to 5:30pm at London’s Business Design Centre in Islington. Simply call 020 7562 3372 and quote “Money Morning” or book via www.masterinvestor.co.uk, using the discount code SS8.

Turning to the wider markets…