Prime Minister Gordon Brown on the ‘likely recession’
Britain’s economic downturn is likely to cause a recession, Prime Minister Gordon Brown has warned.
The global financial slowdown was likely to send the British economy into a recession as well, he told MPs during weekly questioning in Parliament.
Mr Brown has echoed similar warnings from the Bank of England governor, Mervyn King, and a key think tank.
Economic worries have sent the pound plunging to a five-year low against the US dollar.
Mr Brown told MPs: “”Having taken action on the banking system, we must now take action on the global financial recession.”
He said this was likely to cause “recession in America, France, Italy, Germany, Japan and – because no country can insulate itself from it – Britain too”.
Mr Brown is now due to attend a global summit in the US next month to discuss continuing ways to tackle the financial crisis.
Conservative Party leader David Cameron said the prime minister must shoulder some blame for Britain’s downturn.
“He claimed the credit in the boom, why won’t he take responsibility in the bust?” Mr Cameron said.
On Tuesday evening, Mr King warned that Britain was probably entering its first recession in 16 years.
He also said the British banking system had been closer to collapse earlier this month than at any time since the start of World War I.
In other signs of the widening economic crisis:
- Oil fell below $70 a barrel on worries the gloomy economic outlook could limit the impact of any supply cuts that Opec might agree to at its meeting on Friday. Brent crude was down $2.62 at $67.10 a barrel at one stage
- The pound fell to to $1.620, its lowest level against the dollar since September 2003, following Mervyn King’s warning. Further interest rate cuts would make sterling a less attractive investment
- Europe’s banks have borrowed $72bn in short-term loans from the European Central Bank. The ECB has had to replace commercial banks to keep euro zone money markets functioning
- The Yorkshire Building Society is to take over its smaller rival, the Barnsley Building Society, in the latest deal among the UK’s building societies resulting from the international financial crisis
[Mr King] would, I think, attract a large audience for his thoughts on how and whether the Bank of England can prevent the next credit binge and asset bubble
Robert Peston, BBC business editor
The Bank of England has also been criticised for being too slow to cut interest rates in response to the UK’s worsening economic situation.
Sushil Wadhwani, a former member of the Bank of England’s monetary policy committee, told the BBC: “The committee has been too slow to acknowledge the risks of a recession and they have fallen behind the curve.
“The consequence of their relative inactivity so far is that the recession is likely to be deeper and more prolonged than was necessary.”
Meanwhile, the National Institute of Economic and Social Research has said the UK is on the brink of its first full year of recession since 1991.
In its forecast, the NIESR predicted that Britain’s economy would shrink by 0.9% in 2009, with consumer spending falling by 3.4%, business investment down by 3.8% and private housing investment 17.1% lower.
DEFINING A RECESSION
A recession is widely accepted as a decline in a country’s domestic economic output or GDP for at least two consecutive quarters