The UK's economic downturn will result in more crime and illegal immigration, along with a rise in extremism, according to a leaked Government document.
The Home Office is due to deliver the stark assessment to Prime Minister Gordon Brown amid fears that Britain is heading for recession.
The briefing, which sets out the potential for an increase in violent offences due to the credit crunch and soaring food prices, also suggests terrorism could be fanned.
It also indicates there will be "increased public hostility to migrants" as competition for jobs stiffens and people question the financial assistance they receive.
The letter states: "There is a risk of a downturn increasing the appeal of far-right extremism and racism, which presents a threat as there is evidence that grievances based on experiencing racism are one of the factors that can lead to people becoming terrorists."
The Tories said the document - prepared after Gordon Brown ordered Whitehall departments to report on how the slowdown would affect them - demonstrated that ministers had been "complacent".
Shadow immigration minister Damian Green said: "It is clear that in almost all areas of the Home Office things are going to get worse."
A Home Office spokesman said: "We do not normally comment on leaked documents but this is draft advice that the Home Secretary has not cleared and has not been sent to Number 10.
"It is, however, appropriate that the Home Office considers the effects the economic climate may have on crime and other policy areas. We are confident that we have the right systems in place to respond."
