Brown tells Cabinet of looming economic problems

Gordon Brown, the Chancellor, warned yesterday that the British economy would face fresh problems as a direct result of the terrorist attacks in the United States.

Amid growing fears of a global recession, Tony Blair launched a campaign to prevent a collapse in consumer spending by urging the public to go about their daily lives as normal. The Prime Minister asked people to carry on shopping and travelling as usual to help the economy into good shape.

At an emergency meeting of the Cabinet, which discussed the impact on Britain of the Ameraican attacks, Mr Brown said there was "uncertainty in terms of the international situation." He warned: "We cannot be immune from the global economy." The Chancellor insisted he would stick to the Government's existing spending plans but ordered his Cabinet colleagues to keep a tight rein on their budgets to ensure the Government could finance Britain's looming military operation in Afghanistan.

The Government faces a short-term cash crisis because the Treasury's £2.2bn reserve kitty for the current financial year has already been used up. It will have to finance an expected £1bn bill for the control and clean-up of foot-and-mouth disease, as well as hundreds of millions of pounds for rail safety measures brought in after the Hatfield crash.

Other high-cost items include compensation for miners suffering from respiratory illness and military operations by the Ministry of Defence (MoD) in the Balkans and Sierra Leone.

Mr Brown warned ministers he would reject any of their demands for extra funds during a spending review next spring if they fail to "keep a firm grip" on their budgets this year.

One Brown aide said after last night's meeting: "He made it clear that we were entering a period of uncertainty as we faced new demands on public funds in order to meet our international obligations. He said we would not repeat the mistakes of the late 1980s by relaxing our discipline. We would remain vigilant on public spending in order to leave us best placed to provide additional resources to frontline public services in future years."

Mr Brown told the Cabinet that any requests for top-up funding this year would be turned down. "There is no room for manoeuvre," the aide said. "There is a need for extra vigilance by all departments in the current climate."

Although the Chancellor has been sceptical about the value for money provided by the MoD's £23bn-a-year budget, he has pledged that the Government will spare no effort or expense in the war against international terrorism. But alarm bells are ringing at the Treasury over where the money will be found because the reserve fund is already exhausted.

Mr Blair told a Downing Street press conference: "People should go about their daily lives. To work, to live, to travel and to shop, to do the things that people did in the same way as they did it before 11 September. We will be vigilant. But we must not let these events shake our confidence in ourselves, in our country and our way of life."

He also sought to calm the public's fears over a terrorist attack in Britain involving chemical or biological weapons. "We know of no specific threat in relation to this country," he said.

Mr Blair told the Cabinet that the international coalition against terrorism was strong but admitted it faced a "long haul." He called for a worldwide humanitarian operation in Afghanistan to underpin the military operation.

Amid a growing crisis for the airline industry on both sides of the Atlantic, President George Bush appealed to people to continue taking airline flights despite their fears after the suicide plane attacks. Speaking in Chicago to a crowd of airline workers who were waving US flags, he urged citizens to "get on the airplanes, get about the business of America".