The UK is heading for its sharpest fall in output for decades, the deputy governor of the Bank of England warned today.
Sir John Gieve admitted there was now little that can be done to limit the recession in the first half of the year and said governments globally needed to look at further - and wider - action to stave off a prolonged recession.
In a speech addressing delegates at the Cityco Breakfast Meeting in Manchester, Sir John cautioned that while it was possible to "overdo" policy support, more interest rate cuts and fiscal action needed to be considered.
"2009 is certain to be a difficult year for the UK and the global economy more generally," he said.
"In the United Kingdom, we expect the sharpest fall in output for decades while on some measures, retail prices are likely to fall for the first time in almost a decade."
The Bank's aggressive cuts in interest rates - down from 5% to a 315-year historic low of 1.5% since October - have not yet had time to take effect, he added.
"Nearly all economic policy decisions work with a lag, so there is a limited amount we can do at this point to influence the path of output in the first half of this year.
"The main challenge now is to prevent a deep recession being unnecessarily long."
Fourth-quarter GDP figures next Friday are expected to confirm that the UK is officially in recession, as defined by two successive quarters of negative output.
Sir John said output is likely to fall sharply in the first quarter of 2009 with further declines in output likely, although he said it was difficult to predict where the economy will be in a year from now.
The recession calls for a "wider range of responses" from the authorities than any other he has ever seen, according to Sir John.
"The authorities both here and overseas need to consider whether further action on interest rates - or other monetary measures - or fiscal action is required," he said.
"They need also to consider whether to do more to underpin the confidence among banks and among investors that is necessary to support the lending the economy needs to emerge from recession."