Recession on way, Brown told

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GORDON BROWN'S hopes of getting the economy back on track will be dealt a severe blow this week with the publication of the first hard evidence of a dramatic downturn in growth.

The Treasury's analysis of independent forecasts, released on Wednesday, will show that the economy is expected to grow by only 1.1 per cent next year, significantly less than the 1.75 per cent to 2.25 per cent estimate on which the Chancellor based his March Budget.

The announcement, foreshadowed by Mr Brown in a speech in Washington last week in which he admitted that growth would be "more modest" than anticipated, will be worrying to the Chancellor. It is the first real indication that Britain might be heading for recession.

This month's round-up of predictions by 45 outside experts, which is in line with the Treasury's own analysis, shows a sharp dip in growth forecasts. Last month, the average figure was 1.4 per cent, down from 1.9 per cent in June.

Some economists are predicting that next year will be even worse. Goldman Sachs anticipates growth down to 0.5 per cent and J P Morgan forecasts that Britain will go into recession in the first half of 1999.

The slowdown could put the Government's ambitious spending programme, including extra for schools and hospitals, at risk. It is almost certain to lead to more job losses.

Ministers are already so concerned about the damage done to the Government's image by lengthening dole queues that they have put a new strategy in place to co-ordinate the response to factory closures.

Government press officers have been told to liaise about damaging news and, where possible, to complement it with job-creation announcements.

John Prescott, the Deputy Prime Minister, will tomorrow announce the creation of 350 new posts at the pounds 200m Toyota plant in Burnaston, Derbyshire. "Nearly 400,000 more people are in work now than at the time of the election," he will say. "Although growth may be more muted than forecast the Government is on track to meet its tough fiscal rules and deliver on its investment programme for schools and hospitals."

According to the Institute of Fiscal Studies, a drop of 1 per cent in growth next year would mean a "black hole" in government finances of almost pounds 16bn over the next three years.

A Treasury spokesman insisted that Mr Brown had created a "cushion" big enough to compensate for the shortfall, in his spending plans.

However, David Heathcoat-Amory, shadow chief secretary to the Treasury, said the latest figures were evidence that "the Iron Chancellor is rusting".

Mr Brown caused controversy last Tuesday when he slashed his forecasts before a meeting of the Bank of England's Monetary Policy Committee. Critics claimed he "bounced" the Bank into Thursday's quarter point cut in interest rates to 7.25 per cent.

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