Gordon Brown finally admitted yesterday that Britain is likely to suffer a recession — hours after a similar warning from the Bank of England sent the value of the pound plunging to a five-year low.
The Prime Minister’s first use of the ‘r-word’ came as share prices also fell dramatically again and the date for a US-hosted world summit to discuss the crisis was set for November 15.
“Having taken action on the banking system, we must now take action on the global financial recession which is likely to cause recession in America, France, Italy, Germany, Japan and — because no country can insulate itself from it — Britain too,” Mr Brown said at Prime Minister’s questions.
Official statistics due this Friday are expected to show Britain suffering the first of the two consecutive quarters of negative growth which technically constitute a recession.
But, following Bank of England Governor Mervyn King’s recession warning last night, the Prime Minister was forced to concede myriad expert predictions were almost certainly correct.
The official analyses — the first official confirmation of what has been widely predicted by experts for weeks — sparked an immediate drop in the value of the pound.
It fell as low as $1.616 — the lowest since September 2003.
London’s blue chip FTSE share index fell 4.5% to close at 4040.9, with the Cac 40 in France and Germany’s Dax both finishing more than 5% lower and the Dow Jones Industrial Average on Wall Street plunging nearly 300 points in the first few hours of trading.
Commodities were worst hit in London with concerns that demand would plummet amid a recession sending mining companies lower.
There were also predictions that interest rates would be slashed as soon as next month as the Bank of England attempts to stave off a deep recession.
Pressure for deep cuts is likely to mount further on Friday when official figures are expected to confirm a shrinking UK economy for the first time since 1992.
Mr Brown’s words sparked a fierce Commons confrontation with Tory leader David Cameron who urged him to admit his boast to have “abolished boom and bust” had proved false.
Mr Cameron launched another ferocious assault on the PM’s stewardship of the economy — signalling that political consensus extended no further than the need for the banking bailout.
“Of course borrowing goes up in a downturn. Your problem is that you racked it up to record levels before the downturn began. How can you possibly think it is right to go into recession with such a high level of debt. Why can’t you just admit for once you got it wrong?” he asked.
“For years you were telling us about the beauties of prudence with a purpose. Now you are telling us about the joys of borrowing without limit. Doesn’t that show just how ridiculous you now sound?”
Mr Brown insisted Britain had lower debt levels than other major European economies and could afford to borrow to help push the country out of the downturn.
Avoiding a direct answer to the “boom and bust” challenge he said: “We are not returning to the days of 15% interest rates. People are going to be tested over these next few days on the judgements that they make.”
His “undivided attention” was on helping families and businesses through the slump, he told MPs, announcing a new measure to help stop families being thrown out of their own homes. Courts would be given new guidance to halt or adjourn repossession actions unless alternatives, such as deferring payments, had been “fully examined”, he said.