During weekly questioning in Parliament, Prime Minister Gordon Brown is today admitting that it is very likely that Britain will now go into recession, following the recent inflation that is now coming to an end.

Mr Brown is now repeating similar messages to those given by Bank of England governor, Mervyn King, as economic worries have sent the value of the pound coin plunge to the rate of $1.620 its lowest since September 2003.

Mr Brown, who will now be attending a global summit next month in the US, said when addressing MP’s that: “Having taken action on the banking system, we must now take action on the global financial recession.” And also that: “recession in America, France, Italy, Germany, Japan and – because no country can insulate itself from it – Britain too”.

Conservative leader David Cameron has said that the Prime Minister must take on the blame of Britain’s economic problems saying that “He claimed the credit in the boom, why won’t he take responsibility in the bust?”

Earlier this week Mervyn King warned that Britain was entering its first recession in 16 years. He also warned that banking systems in the UK were closer to collapse earlier this month than since the beginning of World War I.

Some of the global signs that we are entering a period of recession include:
• Europe’s banks have taken out short term loans to the amount of $72 billion from the European Central Bank. The European Central Bank has then had to replace commercial banks in order to keep euro zone money markets functioning.

• Oil prices fell below $70 per barrel, and brent crude was down to $67.10 per barrel at one stage.

• Yorkshire Building Society is to take over rival Barnsley Building Society according to the latest deal among the UK’s Building Societies as a result of the international financial crisis.

It has been said that the Bank of England was too slow to act to the UK’s worsening economic situation and has therefore fallen behind the curve.

“The consequences of their relative inactivity so far is that the recession is likely to be deeper and more prolongued than was necessary,” according to former member of the Bank of England’s monetary policy committee member Sushil Wadhwani.

The National Institute of Economic and Social Research (NIESR) has said that Britain is at the verge of its first full year of recession since 1991. They have predicted that the UK’s economy will shrink by 0.9% in 2009, while consumer spending falls by 3.4%, business investments will fall by 3.8% and private housing investments by a huge 17.1%. They have also warned that if the governments £50 billion bank saving scheme does not work, the recession could be even worse.

Mr King, however, is trying to remain optimistic, saying that the government’s financial rescue aid to banks should now lead to a slow resumption of normal lending.

In a true sign that it’s not just the UK that is facing some major economic problems at the moment, with the presidential seat hanging in the balance, it seems economy is high up on the list of campaigner’s priorities.

Democratic presidential candidate Barack Obama is set to meet with four governors of ‘battleground’ states, including Ohio, Michigan, Colorado and Florida to talk over his plans to rescue the US economy. In true political style however, Republican rival John McCain has told voters that he is the one to listen to about the economy. Mr McCain will be spending the day in Pennsylvania, while Mr Obama holds his job summit on the second day of his Florida tour.

Later this week, Mr Obama is set to take a couple of days out of his campaign in order to visit his grandmother, who is said to be seriously ill. Now 85 years old, she played a major role in the Democratic presidential candidate’s upbringing. Mr Obama has a substantial lead in the polls so far over his rival, but his absence is apparently still going to make his staff nervous, as elections are just two weeks away, and the current lead is so far not enough to guarantee victory.

Barack Obama will move his campaign to virginia and Indiana over the next couple of days, two traditionally Republic states, where he is doing well on the polls.

Mr McCain in the mean time is refusing that the current financial crisis is hurting his campaign, after it is reported that one of his senior advisors has said that “If we keep talking about the economic crisis, we’re going to lose.”

In retaliation to that however, Mr McCain has said that his party is going to be “focusing on the economy,” and has told voters. “Listen to me. I’m the candidate, and this campaign is about the economy.”

However, opinion polls so far suggest that voters believe more in Mr Obama’s chances of controlling the economy than Mr McCain’s.

Republican candidate, McCain, is promising that if he is to become President, he will do more to help homeowners defaulting on their mortgages, and that he plans to cut taxes in order to help create jobs. While campaigning in Missouri, he has accused Democratic rival Obama of plotting to increase taxes.

Even former rival Hilary Clinton is helping in Mr Obama’s campaign, by urging a crowd of around 50,000 people to help get Barack Obama into the presidential seat on the day that early voting opened in Florida.

Mr Obama has accused Mr McClain of “ugly” campaigning, and is focusing his campaign on the economy and those in the state that have suffered the effects of the mortgage crisis. 

It has been revealed today, that last month, the UK government borrowed record amounts.

The Office for National Statistics (ONS) data shows that the Public sector net borrowing hit £8.092 billion in September of this year, compared to last year’s £4.775 billion.

The amount that has so far been borrowed in the financial year of 2008 (£37.6 billion) is more than was borrowed throughout the whole of the 2007 financial year.

It was predicted that the government’s borrowing would reach about £10.1 billion this September. However, it is shown that they have in fact borrowed £12.65billion, nearly £4 billion more than in the same period just one year ago.

The cumulative borrowing for April to September this year is the highest it has been since just after World War II, in 1946. Where the government borrowed £21.46 billion last year, it has this year borrowed £37.59 billion.

These figures show what most of us had already guessed – that borrowing is set to rise dramatically in the current financial year.
 
However, the government has said that it will continue to invest money into public works in order to try and prevent a recession.

According to yesterdays figures by Ernst & Young Item’s Club, the UK is already in a recession, and we should expect to see the economy shrink by 1% next year, but then begin to grow again by 1% in 2010.

More figures are due out at the end of this week, and are expected to show that the UK economy has shrunk in its third quarter of the financial year. This would be the first contraction since 1992.

In March 2008, Chancellor Alistair Darling calculated that for the full financial year of 2008-09, the public sector would be borrowing £43 billion. The Item Club now believes that this figure will become something much closer to £60 billion, £27 billion more than the government’s prediction in March.

With this in mind, the Item Club has said that “substantial revisions will be necessary in the Pre-Budget Report.”

With recent data about the housing sector showing that mortgage lending has also fallen to its lowest level for nearly 4 years in September, according to the Council of Mortgage Lenders, and unemployment predicted to continue to rise, it is clear that the governments financial situation is going to face a lot more pressure in the future.

The UK government is already taking steps to try and prevent a recession, announcing last week that it was going to start a Bank Rescue Plan by dropping its interest rated by 0.5%. Now other countries, including Sweden and South Korea are taking similar measures in an attempt to stabilise the markets.

While Conservative leader David Cameron may believe in Prime Minister Gordon Brown’s bank rescue plan, he has also made clear today that he believes that the Labour party’s economic strategy is a complete failure, and that he does not support this in any way.

After accusations that the Conservative party have agreed with the economic agenda up until recently, Mr Cameron has retaliated by giving a very public speech of his disapproval of how the country has been led into economic disaster.

He has accused Labour of hiding from the truth of their past policy failures, and that this has lead to the economic crisis that we are now facing that is affecting both people and businesses.

According to a speech given by Mr Cameron:
“We need change to mend our broken economy. This lot cannot do it – not least because they cannot own up to any mistakes.”

While it may be true that we are currently facing some serious economic problems, other political parties are also making it clear that they do not believe with the Conservative party’s decision to speak out against the problems in our economy, calling it the “worst kind of politics”.

Among his other accusations of the Labour party’s failures, Mr Cameron has argued that Mr Brown had embraced free market economics “without question” and without “properly understanding how it worked”.

Also that Labour had ignored warnings about borrowing “without restraint”, and that overall, over the past decade, our current governments failure to control public and private spending has lead to unsustainable  debt levels due to “intentional” disregard.

The idea that Labour had made false assumptions was a major component of the Conservative’s speech.  Including that Labour had tried to build a successful economy on a “narrow base of housing, public spending and financial services”.

Mr Cameron is suggesting that in order to hold ministerial spending, he would set up an independent body – the Office of Budget Responsibility, and wants to see tougher regulations of the banking sector, and changes to laws that protect struggling businesses, along with much more.

He is saying that Britain has become too dependent on property, and its financial services in order to produce our countries wealth, and has called for a range of new measures in order to create a more “balanced and resilient economy”.

Other political parties are also showing their lack of support for Mr Cameron over his speech, and accused him of “juvenile political games”, in order that he may on the news.

Other parties have said that he had “nothing of real substance” to say about our economic crisis and that the British people “want calm leadership and serious policies to get through tougher times”, and the Conservative party are not offering this.

Today’s US Dow Jones share index has been unpredictable to say the least, bouncing frequently between gains and sharp falls, and barely changing at all in early afternoon trading.

Investigations reveal that industrial production in September of this year has suffered its biggest drop since 1974, while inflation remains unchanged.

Statistics show that earlier today, Asian shares had dramatically fallen in Tokyo’s Nikkei by 11%, London’s FTSE 100 closed down 5.7%, France’s Cac 40 fell 5.9%, and many other changes.

This all comes after yesterday’s biggest one-day percentage fall since October 1987 of 8% down.

Other changes include:
• September’s US industrial production fell 2.8%

• In October, Philadelphia Federal Reserve’s report showed manufacturing conditions had weakened.

• Hong Kong’s Hang Seng fell 7.6% to 14,785.60

• India’s main share index fell 4%

• Australia’s main share index fell 6.7%

• After weekly US fuel reserves figures rose more than expected, causing oil prices to fall

• As effective from Monday, the Bank of England announced it would change the way it leant UK banks

• Germany reduced its prediction for economic growth from 1.2% to 0.2% for next year

It is thought however, that the hurricanes in the Gulf of Mexico and a strike at Boeing could partly be to blame for some of the fall in industrial production.

Chris Rupkey at Bank of Tokyo-Mitsubishi UFJ in New York has said that:
“It is a sign that the economy is falling away quickly, and it is certainly consistent with the recession that we seem to be in.”

As bank rescue packages proposed by the UK and European Union emerged, shares in the market rose at the beginning on the week. But now there are worries about how a prolonged economic shutdown could affect the rest of the economy.

The Japanese Prime Minister has suggested that the $700billion (£406billion to you and me) US bank bail-out package was too little and that the market will continue to fall sharply even after this effort.

It is worrying that the signs suggest that cash injections from central banks had not yet restored confidence in the banking sector, and banks are still not lending to each other at anything resembling the normal rate of interest relative to official rates. This means that they are even less likely to lend at better rates to customers and businesses.

According to AFP news agency, in an attempt to find solutions to this problem, Credit Agricole has struck a deal with eight mutual European banks to resume lending to each other.

As mentioned above, the Bank of England is also trying to help, by changing the way it is prepared to lend to them. Banks should be allowed to borrow overnight without any problems, and will be offering loans for up to 30 days with advantages including mortgages being acceptable as collateral.

In the biggest rise since 1991, the rate of unemployment has now hit 5.7% according to government figures, and it is expected that worse is to come.

As both the number of people in work, and the number of job vacancies both fall, the number of Jobseeker’s allowance claimants continues to rise. In September, it is thought that nearly 940,000 people claimed the benefit reserved for the unemployed, putting even more stress on the UKs currently fragile economy.

It also seems that the current inflation is not being reflected in wages. In the three months leading up to August 2008, annual earnings growth slowed to 3.4%, its lowest since 2003.

And it seems that worse is yet to come, as it is said that some economists predict that unemployment could reach two million by Christmas this year, and could be as high as three million in December 2009.

The Chartered Institute of Personnel and Developments Chief Economist, John Philpott is recorded to have said that:
“We’ll see hundreds of thousands of jobs being lost, and unemployment is likely to rise, certainly above two million. The question is how much further than that.”

Now the government has to find an extra £100 million in order to re-train, and give personal advice to workers that have lost their jobs, particularly through redundancy, due to the credit crunch.

The TUC are also demanding that other measures be taken to help the increasing numbers of people who will find themselves out of jobs, including increasing the statutory minimum redundancy pay.

The public sector is likely to be one of the worst hit areas, as nearly 10,000 jobs are expected to be lost in up to 100 courts in an effort to save money.

In aiming to save around £900 million over the next two years, the Ministry of Justice may have to make thousands of workers in prisons, probation and court services redundant and potentially close up to 100 courts.

In other areas, the Department for Work and Pensions has announced that they are to cut 12,000 more jobs, on top of the 30,000 already due to be lost, because of their budget cut of 5.6% over three years in real time.

Revenue and Customs is another area that is said to be cutting jobs again. It is expected that 12,000 more jobs will disappear, on top of the 17,500 already lost.

Official figures show that last month’s consumer prices hit yet another high, with the Consumer Price Inflation (CPI) rising from 4.7% in August, to 5.2% in September.

Increased energy prices are primarily being blamed for this raise, but analysts believe that this should be the peak of the inflation, as fuel prices finally begin to fall.

Not only did Septembers CPI show an increase, but also its Retail Prices Index (RPI) has hit 5%, compared to 4.9% a month earlier. This means that the government now has to potentially spend billions of pounds in order to increase benefits and pensions by either 2.5% or headline RPI in order to keep consumer financial help in line with these highly inflated prices.

Last week, The Bank of England cut its interest rates from 5% to 4.5%. Many other central banks around the world, including the Commonwealth Bank of Australia (CBA), have also decreased their interest rates by the same percentage, in order to help boost markets and prevent further inflation. The Bank of England at least, is also predicted to cut its interest rates a further 0.5% by the end of the year.

Other factors that are being blamed for inflation rising well above the government’s 2% prediction, include rises in food and energy prices, along with more expensive clothing, footwear, toys and games, all adding to the cost of living for everyone, especially families.

According to the Office for National Statistics, the annual rate of inflation for energy and household bills has reached its highest since 1989, at 15%. However, food inflation has eased recently, with a smaller increase than has been normal of late, from 12.7% to 14.5%. This is being attributed to a fall in the cost of dairy products such as milk. On the other hand, the price of meat continues to rise.

Now, it is worried that recession could potentially become more of a threat to the economy than the recent inflation.

It is predicted that, by Autumn 2009, is likely that inflation could be as low as 1%, and could possibly drop into negative figures, if the likes of oil prices continue to fall.

Jonathan Loynes, Chief European Economist at Capital Economics, has stated that:

“The key issue now is just how far and fast it will drop back as the food and energy effects which have pushed it up so sharply over the last year finally fade or go into reverse.”

The prime minister Gordon Brown has called on other governments to follow Britain’s lead by supporting their struggling banks.

The Labour leader wrote in the Times that the crisis needed a “global solution” and that he believes world leaders need to meet together to plan a restructuring of financial markets.

It comes as the chancellor, Alistair Darling, is in Washington meeting finance ministers from the G7 group of richest nations.

The FTSE 100 share index closed last night lower than any time since August 2004. The drop comes despite Wednesday’s historic rescue package for struggling banks, totally £500bn.

Mr Brown said that our banking system is fundamental to “everything we do”.

He said: “Because this is a global problem, it requires a global solution.

“Indeed this now moves to a global stage with a range of international meetings starting this week with the G7 and the International Monetary Fund and, we propose, culminating in a leaders meeting in which we must lay down the principles and the new policies for restructuring our banking and financial system all around the globe.”

Mr Brown added that it is “only through the boldest of co-ordinated actions across the globe” that families and businesses could be “adequately supported”.

Mr Darlings meeting in Washington comes after the Dow Jones in New York fell to its lowest level in five years, closing below the 9000 points barrier.

According to information from Economics and Business Research, the value of city bonuses in the UK is expected to fall this year by 58 percent, but it still forecasts bonuses of around £3.5bn will be paid out.

An urgent meeting with chancellor Alistair Darling has been called for by local authority leaders after it emerged that at least twenty councils have cash in troubled Icelandic banks.

The investments run into hundreds of millions of pounds and they are asking the UK government for the protection it has promised to personal savers. The Conservatives have warned that up to £1bn in council funding could potentially be in danger, however the Local Government Association (LGA) said services were not at risk.

The Treasury said it was looking into the issue of protection for councils but has given no guarantees over the money.

The LGA represents councils in England and Wales. It says that 20 councils have been identified that are believed to have deposits in the collapsed Icelandic bank Landbanksi or its UK arm Heritable.

They include Kent County Council, which has £50m invested with Icelandic-based banks. The LGA is still trying to work out the total amount involved, but believes that, aside from Kent, many of the councils had investments that number in “single figure millions of pounds” but others had deposits “running in the low tens of millions”.

John Ramsford chief executive of the LGA dismissed the Conservative claims of the amount of money at risk. However, he said that the amount of public money at stake was “significant” and must be protected.

“This is public money and we need to treat this in exactly the same way as individual investments in these banks,” he said.

The amount of money varies by County, but some figures have been confirmed;

Westminster City Council: £17m
Sutton Council: £5.5m
Havering Council: £12.5m
North Lincolnshire Council: £5.5m
North East Lincolnshire Council: £2.5m
Hertfordshire County Council: £17m
Buckinghamshire: £5m
Cornwall County Council: £5m

Boris Johnson, the Mayor of London, revealed that Transport for London had £40m deposited in one of the affected banks.

“We are looking to see what redress we can find,” he said.

The Conservatives have warned that town halls could face “massive financial shock” and are likely to enforce council tax hikes or cuts in local services.

Eric Pickles, the party’s shadow secretary, said it will be tough times for councils: “They are not going to find it easy in the short term”.

He added: “We need to look at the number of authorities that will be facing a cash-flow problem - some have their payroll on this, for others it’s in terms of long-term investment.”

The LGA insisted that councils involved had enough money to ensure that frontline services are unlikely to be affected, but it would be happier if councils had the same level of protection as personal customers of Icesave and other failed Icelandic banks.

The prime minister has said that legal action will be taken over Iceland’s failure to guarantee compensation for UK customers in its banks.

Iceland’s prime minister Geir Haarde said his government was working to repair relations with Britain amid the crisis.

This morning the UK government announced details of a £50bn rescue plan for the British banking system. The extra capital will be made available to eight of the UK’s largest banks and building societies in return for preference shares in them.

Gordon Brown said that the rescue plan is “designed to put the British banking system on a sounder footing.” However the FTSE 100 in London fell 5 percent. HBOS shares rose 26percent but Barclays fell 11 percent and Standard Chartered dropped 13 percent.

The key points of the rescue plan are:

• Banks must increase their capital by at least £25bn and can borrow from the government to do so.
• An additional £25bn in extra capital will be available in exchange for preference shares.
• Short term loans from the Bank of England have increased from £100bn to £200bn.
• Up to £250bn in loan guarantees will be available at commercial rates to encourage banks to lend each other.
• To be involved in the scheme banks will have to sign an FSA agreement on executive pay and dividends.

Banks have been taking criticism for being unwilling to lend to each other, so the government hopes that if those loans can be guaranteed then lending will resume.

“This is beginning a process of un-bunging a big problem where banks won’t lend to each other for long periods,” Mr Darling said.

Barclays, HBOS, HSBC, Lloyds TSB, Abbey, RBS, Nationwide Building Society and Standard Chartered have all agreed to take part in all aspects of the scheme. The Treasury said that any other banks can apply to be included in the plan.

Preference shares pay a fixed rate of interest instead of a dividend, which has to be paid before other shareholders receive anything, but they do not carry voting rights.

Although taxpayers may end up making a profit from the shares, this is not guaranteed.

There is hope the deal will get the money markets moving again and assure the future of the banking system.

“They’ve got additional capital now if they want it, they’ve got an unlimited source of liquidity,” said Terry Smith, chief executive of the money brokers, Tullett Prebon.

“That certainly should stop the panic in terms of people wondering whether or not the banks are safe.”

The deal has also been welcomed by banks who have been feeling the pressure of late.

“The government’s announcement represents a very real and serious intention on the part of the authorities, following consultation with the banking industry, to bring stability and certainty to the UK banking system,” HBOS said in a statement.

Barclays, Lloyds TSB and RBS also issued statement welcoming it.