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Theresa May was today holding crunch talks on Brexit as the Bank of England warned that thousands of “vulnerable households” sitting on high debts could be plunged into crisis by an economic slowdown.

The Prime Minister was meeting Martin Schulz, president of the European Parliament, who has urged her to swiftly press ahead with the UK quitting the EU.

Just hours before he arrived at No 10, the bank issued a grim analysis, saying that any drop in growth could see indebted families panic and rein back on spending so quickly that the national economy would be hit harder.

The warning from the Bank’s financial policy committee contrasted strongly with a flurry of positive-sounding economic data.

“The FPC remains concerned that the ability of some households to service their debts would be challenged by a period of weaker employment and income growth,” said the Bank, adding: “These vulnerable households could affect broader economic activity by cutting back sharply on expenditure in order to service debts.” It also warned of a “challenging period of uncertainty and adjustment”.

The Mayor of London Sadiq Khan is meeting Mr Schulz to press for the capital city to be given its own seat in Brexit negotiations. “I am sure that the president already realises that although the decision to leave the EU was not what the capital wanted, we look forward to working closely with the union and its member states to boost economic prosperity both here in London and across the continent,” said Mr Khan.

“The meeting will also allow me to discuss with the president how I am also pressing the Government to state unequivocally that no retrospective legislation will ever be introduced that curtails the rights of EU nationals currently working in London.”

Mr Schulz has repeatedly warned that Britain cannot expect full access to the European single market after Brexit.

But Mr Khan will say that London needs comprehensive access to the single market and the ability to keep and attract talented people from across the EU. Meanwhile, there was more positive economic news, with latest figures showing that mortgage lending rebounded last month. The Council of Mortgage Lenders reported its strongest August since 2007, with an estimated £22.5 billion-worth of home loans handed out.

This was seven per cent higher than July’s lending total of £21.1 billion.

Mortgage lending was also up by 15 per cent year-on-year, from £19.5 billion in August 2015.

CML senior economist Mohammad Jamei said: “Widely voiced fears in recent months about the housing market have proved to be wide of the mark. Prospects for house purchase activity post-referendum look slightly subdued, when compared to late 2015 and early 2016. However, sentiment in the market recovered in August. This is reflected in stronger-than-expected transaction figures, and in our gross lending estimate.”

However, ministers are concerned that the robustness in the economy could be hit as the process of withdrawing from the EU starts.

There are also growing fears over the impact on the City of Brexit, with several global investment bank executives telling Bloomberg that they believe Germany and France will win a battle over the clearing of £440 billion of euro derivatives.