Brown delivers grim economic warning to cabinet colleagues

Gordon Brown has warned his cabinet colleagues that a war in Iraq could result in a global economic slowdown, rising oil prices and further falls in stock markets.

Even without a military conflict, the Chancellor is expected to downgrade his forecast for economic growth in Britain this year when he presents his pre-Budget report in November from the 2 to 2.5 per cent figure he predicted in April. The City expects growth of only about 1.5 per cent this year.

Ministers are worried that the economic impact of war could force the Government to cut its spending plans or raise taxes after Mr Brown gave them a gloomy forecast for global prospects at last week's cabinet meeting. His allies stressed yesterday that he did not oppose a war in Iraq or question Tony Blair's strategy.

Mr Brown will tell the Labour conference in Blackpool today that, despite the global instability, tough economic decisions have given the Government a "unique opportunity" denied to its predecessors – stable long-term funding for public services.

The Chancellor will face down trade union demands for a value-for-money inquiry into the Government's use of private finance in public services, on which the Labour leadership faces defeat at the conference today.

He will challenge Labour to go further on modernisation by becoming "the party of enterprise" which champions small businesses and the self-employed as much as ordinary workers.

He believes the New Labour project will not be completed until the party fully embraces the "enterprise culture" trumpeted by Margaret Thatcher.