Recession coming, minister admits

Tony McNulty, the new Work and Pensions minister, yesterday became the first government minister to acknowledge that Britain was heading for recession.

He said the success of moves to shore up Britain's banks "will be the precursor to how deep and how long the recession will be". He added: "We're slowly getting to a stage where the slowdown may well turn technically into recession and then we'll be talking about the nature and depth of the recession."

His comments came as the Chancellor, Alistair Darling, and other finance ministers from the G7 group of leading countries, arrived in Washington to discover that the Dow Jones index of leading shares had fallen below 9,000 points for the first time since 2003.

Treasury sources said the British Government's priorities for the summit would be to push other countries towards a comprehensive approach to resolving the financial crisis and a renewed effort at strengthening international economic co-ordination.

The US Treasury Secretary, Henry "Hank" Paulson is believed to be trying to expand the meeting to the G20, adding to the G7 advanced economies those of Russia, China, India and other rapidly growing countries. Together they account for the vast majority of the world's GDP.

The G7 summit comes at the end of a tumultuous week in the markets. Yesterday's dramatic drop in the Dow Jones was mirrored by a similar fall in European indexes, with the FTSE down 53 points and France's Cac 40 down 40 points by the close of trade.

If the fear that has swept markets returns, it could overwhelm even the most determined attempts by governments to contain the crisis. A succession of interest rate cuts, lending to financial markets and, yesterday, strong hints from the US Treasury that it stands ready to part-nationalise some of America's leading banks, have failed to fully calm nerves.

The managing director of the IMF, Dominique Strauss-Kahn, said yesterday that "we are on the cusp of a global recession", and pledged an emergency programme of funds for countries experiencing difficulties. However, he refused to name any prospective recipients of IMF aid, while the most obvious contender among the rich nations, Iceland, has said it is not seeking such funds.

The president of the World Bank, Robert Zoellick, warned that the world's poorest face the "triple jeopardy" of food, fuel and finance: "The poorest cannot be asked to pay the highest price. We estimate that 44 million additional people will suffer from malnutrition this year as a result of high food prices. We cannot let a financial crisis become a human crisis."

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