Our military history is replete with acts of stunning bravura. But in the economic realm, today's stand of the British consumer is taking on epic, almost incredible proportions.

In the first three months of this year, in the face of the worst business headlines for a decade, darkening prospects for the housing market, rising prices and an intensifying squeeze on real incomes, retail sales volumes climbed 2%.

This translates into a 1.3% gain for total spending – the fastest pace of growth for five years. Such resilience has defied all predictions. But how long can we expect this consumer defiance to hold up? What will happen when the thin red line breaks, as many are now convinced it will? And where are the grounds for hope?

Consumer sentiment is now being hit by a weakening economy, a plunging housing market, the squeeze on purchasing power from higher utility, food and petrol prices, the credit crunch and financial market turbulence, and plunging support for the Government.

"Confidence in the economy evaporates" was the splash on one national newspaper's front page last Friday. As headlines go, this was one of the scariest in this downturn so far. For 20 years and more, consumer spending has been the single greatest driver of the UK economy.

Should this go into reverse, there is scarcely a business that will be unaffected. Thus, far from the worst of the financial crisis being behind us, the worst – for households, businesses and banks – still lies ahead.

The reasons for this gloom are not hard to find. The latest GfK index of consumer confidence released on Friday showed its lowest reading since 1990, just when the UK was falling into a recession. The general public's expectations for the next 12 months are the lowest since the survey began in late 1981.

The housing market is in virtual freefall, with the Nationwide reporting a 2.5% slump in average prices in May. Indeed, according to calculations based on house price behaviour over the most recent three months, prices are now falling at an annual rate of 16%, the fastest rate of decline since 1991 and probably since Nationwide began compiling house price data in 1952.

The CBI's May Distributive Trades Survey, also out last week, revealed an all too familiar worrying mix of weak activity and rising price pressures.

It showed a balance of +14% of retailers reporting that sales were down year-on-year. This was well up on the reading for April, but markedly below the long-term average of +18%, while the underlying trend in sales continued to weaken.

Specifically, the three-month moving average of retailers reporting increased sales year-on-year fell to –13% in May from –9% in April and +10% at the end of 2007. Sales of durable household goods were again down in May, while sales of furniture and carpets were particularly soft.

Meanwhile, the Bank of England will be disturbed to see that the balance of retailers expecting to raise their prices over the next three months climbed to +52%, the highest level since August 1992. Furthermore, a balance of +56% of retailers reported that they had raised their prices over the past three months – a 16-year high.

Now comes the upward rush in petrol prices. The latest gyrations in the spot market have taken the price back below $128 a barrel after the spike to $135. But garage forecourt prices are still well up on what they were a month ago. At the same time, food prices have also been rising sharply, up by 5.8% in May compared with the start of the year.

Inflation overall continues to rise: 4.2% on the RPI measure, 3% on the official CPI measure. The CPI is forecast to peak at between 3.5% and 4% later this year. On top of the immediate pressures this piles on household incomes, it has also had the effect of obliging the Bank of England to take the prospect of a series of interest rate cuts to 4% off the table for now.

Previously, the belief had been that lower rates would kick in soon enough to boost confidence and avoid a slowdown turning into a recession. Now it is not looking so sure. There is no evident floor at present to falling confidence. Faced with this toxic combination, there is not much the Government can do. It may postpone for now the planned 2p increase in fuel duty due this autumn. And it may put in place measures to relieve fuel poverty. But the big levers of economic policy are out of reach. Extra Government borrowing to finance spending would blow a hole through the 'golden rule'. And lower interest rates are not in the Chancellor's gift.

So the pain will have to be borne, and it may last well into 2010 before there is a let-up. The immediate consequences are likely to be a sharp rise in mortgage borrowers seeking help on repayments and a rise in the numbers of mortgage arrears and defaults. Business failures, too, are set to rise sharply. And in due course unemployment would climb.

If Prime Minister Gordon Brown feels beleaguered now, the pressures are about to get worse. He has been likened to someone turning up at a party just when the punchbowl has run dry. I fear it may be worse: he's like the man who has waited 10 years for the luxury world cruise only to find the fare has doubled and the ship's in for the stormiest voyage in decades.

So where in all this can we find grounds for comfort, if not some hope? First, it is still possible that the US economy could avoid recession. If it does so then investor confidence globally would enjoy a big fillip. A narrower trade deficit helped the US economy grow at an annual rate of 0.9% in the first three months of the year, up from an earlier estimate of 0.6% growth. It is not yet in recession. In the second quarter the stimulative impact of the $600 a head tax rebates should start to kick in. There are also signs that US house sales are starting to bottom out.

However, the latest surge in the oil price could entirely offset that boost from tax rebates. America consumes some 4.5 billion barrels of oil a year, and since January the price has risen by $30 a barrel. If sustained, this would amount to an extra "oil tax" of about $135bn a year. This works out at roughly the same size as the tax rebate: $110bn for consumers and $42bn for businesses this year.

In the UK, bear in mind that unemployment would be rising from a historically low level and that the problems of the housing market should not impact on the vast majority who have no need to buy or sell. There may be cuts in foreign holidays because of the extra fuel surcharges but that would mean more business for holiday destinations at home.

Many private motorists will have to adapt by cutting out unnecessary journeys, sharing cars and opting for more fuel-efficient models when buying anew, while home improvement will concentrate more on energy-saving and insulation. Luxury and high-margin retailers will feel the squeeze, but cut-price supermarkets should enjoy strong growth. In short, we will adapt and muddle through to the next upturn, though for many businesses and households this is set to prove the worst downturn since the mid and late 1970s, and with a high casualty list.

The thin red line of consumer spending has bravely held till now. But the forces now arrayed against it would require a miracle to withstand.