The UK Daily Telegraph is reporting that an unnamed rating agency is set to cut Britain’s credit rating following yesterday’s calamitous fall in bank shares and the government’s astonishing blank cheque for the banks.

Edmund Conway writes that this is only a whisper, but given the S&P reduction in Spain’s rating just days ago, it has the ring of truth.

Should it happen, it will put up the interest paid on “gilt-edged” government bonds, and filter through to almost every part of the economy.

Unlike Spain and Ireland, however, Britain has the advantage of a free-floating exchange rate that acts as a safety valve for the economy when times are tough. With interest rates approaching zero, more strings become available to pull, despite the apparent loss of monetary control.

However, the astonishing 96 percent fall in the share value of giant international lender, Royal Bank of Scotland — now 70 percent owned by the government — has led to some commentators calling the UK “Iceland on Thames”.

It would be a big blow to the fragile ego of Gordon Brown in particular. He knows that “his watch” has lasted 12 years and a catastrophe will destroy what little reputation he has left.

Should Brown be placed on suicide watch?