The ninth of August 2007 was the first day of Mervyn King’s holiday. The governor of the Bank of England spent it at Lord’s cricket ground where he was interviewed by the former England cricket captain Michael Atherton. While Lord King was watching the cricket, the French bank BNP Paribas announced it was freezing the assets of hedge funds that were heavily exposed to the US sub-prime mortgage market.

It was the first and last day of King’s holiday. He would not have another for several years. Within six weeks, members of the Bank’s court – its oversight body – were being whisked into the back entrance of Threadneedle Street in a people carrier with blacked-out windows to be told that money was haemorrhaging out of Northern Rock.

For three days in the middle of September 2007, queues formed outside branches of the former building society – the first run on a UK high street bank since the 1860s.

The writing was on the wall for Northern Rock from the moment the markets turned sour on 9 August. Its business model relied on it being able to borrow money from other banks and investors, and that was no longer possible in the panic-stricken conditions of August 2007, when none of the banks trusted each other.

Recalling the drama a decade on, King said Northern Rock “literally ran out of money” even though on paper it appeared to be in a stronger position than any of its UK rivals. It was taking too many risks and had no alternative sources of funds if the markets dried up.

“All the company’s 400 manufacturing and office staff are based in the Devon town of Axminster, where Thomas Whitty began making carpets in 1755.

The original Axminster carpet was laid in Brighton Pavilion as well as bought by King George III and Queen Charlotte, who visited the factory. After a fire halted production, carpet manufacturing did not return to the town until 1937.

A statement from Axminster today confirmed the notice of intention to appoint Duff & Phelps as administrators.

It said: “The notice was filed in order to provide the company and its creditors with a moratorium period during which the various rescue options being explored can continue.”

“The idea that the Great Recession of 2008 may have been caused not just by careless banking but also social inequality is currently all the rage among macroeconomists.

Much of the impetus for the current debate stems from the widely discussed 2010 book Fault Lines, written by Raghuram Rajan, a former chief economist of the International Monetary Fund. Rajan argues that many lower- and middle-class consumers in the United States have reacted to the stagnation of their real incomes since the early 1980s by reducing saving and increasing debt. This has temporarily kept private consumption and thus aggregate demand and employment high, but also contributed to the creation of the credit bubble which eventually burst.

In Rajan’s view, a large portion of the blame for this falls on misguided government policies, which promoted the expansion of credit to households. But the “Rajan hypothesis” also contradicts the dominant textbook theories of consumption, which see no link between persistent income inequality and aggregate private consumption, and hence no need for government action stimulating consumption demand and jobs in response to higher inequality.

These theories, known as the permanent income or life-cycle hypotheses, are based on the assumption that consumers form rational expectations about their long-term income. Short-term fluctuations of income due to, say, unexpected job loss, or lower than average stock market returns, have only a limited impact on current consumption since households expect them to be only temporary. According to this view, households can insure against windfall losses through efficient credit markets and “smooth” their consumption over the longer term.”

The British economy has allowed people to expect this long term certainty by growing metronomically at 2 -2.5% a year for the last 50 years. The key question is if this is now over will the opportunity for people to ride out the type of short term fluctuations identified above continue? If not then inequalities will grow as credit dries up. We can already see this happening in generational terms with young people without private backing daunted by university debt and effectively debarred from the mortage market. This will have major implications for young people seeking to exercise choices about living and working in rural England, where the extremes around these issues are exacerbated by sparsity.