Gordon Brown admitted for the first time that Britain would go into recession as a survey showed a big increase in his standing among businessmen, who are losing confidence in the Conservatives.
The Prime Minister, who has previously avoided using the word "recession", prepared the public for the worst ahead of official figures that will show Britain slipping into negative growth in the past three months.
Share prices fell dramatically yesterday after the gloomy forecast. The FTSE 100 ended down 4.5 per cent, with recession fears further undermining sentiment on ailing banks and commodity stocks. A late sell-off in New York meant the Dow closed down 5.7 per cent at 8,519.2. The 514-point decline was the seventh largest on record. Although there is only a technical recession when the economy shrinks in two successive quarters, Mr Brown's statement was an admission that that is now inevitable.
Figures to be released by the Office for National Statistics are expected to confirm that the British economy shrank by about 0.2 per cent during the period from July to September. This follows the zero growth recorded during the second quarter of this year, and thus leaves the British economy on the brink of its first decline since 1992. The National Institute for Economic and Social Research predicted 18 months of contraction or stagnation in the economy, with unemployment reaching two million by Christmas.
But Mr Brown can take some comfort from a ComRes survey of 287 business leaders for The Independent. The number of businessmen and women who have confidence in his ability has doubled from 20 per cent in August to 42 per cent now. Some 70 per cent of them believe he has responded well to the global financial crisis.
The findings make grim reading for George Osborne, the shadow Chancellor. The poll was taken before the allegations that he sought a donation to the Conservatives from the Russian billionaire Oleg Deripaska, but amid concern among Tory backbenchers that he was not having a "good war" in the political battle over the economy.
The proportion of businessmen who have confidence in Mr Osborne has dropped from 44 to 36 per cent since August, his lowest rating since ComRes began the regular survey of business opinion a year ago. Only 36 per cent believe he has responded well to the financial crisis – a lower rating than Mr Brown, the Chancellor, Alistair Darling (44 per cent) and the Tory leader, David Cameron (49 per cent). The Chancellor's ratings, like Mr Brown's, are on the rise. The number of businessmen who have confidence in Mr Darling has risen from a low ebb of 9 per cent in April to 25 per cent, though he still trails Mr Osborne and Mr Cameron (47 per cent).
Mr Brown told the Commons: "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." His comments came a day after Mervyn King, the Governor of the Bank of England, said a recession was inevitable in a speech which sent the pound falling to its lowest level against the dollar since September 2003.
Mr Brown clashed with Mr Cameron, who repeatedly challenged him to admit that he had failed to abolish "boom and bust" as he had often boasted. The Tory leader admitted that borrowing should rise in a downturn, but told the Prime Minister: "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?"
The Prime Minister announced that courts will be given new guidance to halt or adjourn repossession actions when people run into trouble with their mortgage payments until alternatives, such as deferring payments, had been "fully examined". About 18,900 people lost their homes during the first half of the year, 48 per cent more than in the same period last year and the highest figure since 1996. The number of repossessions is expected to reach 45,000 by the end of the year.
Mr Brown will attend a summit in Washington on 15 November of world leaders which was announced by the White House yesterday.Reuse content