The recession in Britain was confirmed yesterday when figures released by the UK's Office for National Statistics showed that the country had two successive quarters of negative growth, with the economy shrinking by 1.5 per cent in the final three months of 2008.
Economists warn that the UK is heading for economic depression, the first since 1930s.
The worst figures released since 1980 has put Prime Minister Gordon Brown and Chancellor Alistair Darling on the mat as the country is facing severe job losses, a currency that is losing value, manufacturing and retail sector in the doldrums, increasing home repossessions and above all, the multi-billion bank bailout failing to improve credit availabilty for businesses going banckrupt, adding to job losses.
All sectors of the economy have shrunk barring agriculture; manufacturing shrunk by 4.6 per cent although the weak pound could not bail out exporters, utilities saw the sharpest fall since 1980, dropping by 3.9 per cent, the massive services sector that accounts for three quarters of the country's GDP declined by 1 per cent and unemployment has soared to nearly 2 million and tipped to rise to 3 million early next year.
Brown, already under pressure for not being able to tackle the banking crisis, admitted that he did not see the economic crisis coming. Speaking on BBC Radio 4's Today programme, he said, every recession in the last 60 years in Britain had been caused by domestically generated inflation caused by wages getting out of control on some occasions, or interest rates being raised.
"This is a completely different type of event, as everyone recognises. This results from a global banking crisis. So America's already in recession. Germany's been in recession for some time. The euro area is in recession. It's a global financial crisis caused by irresponsible lending practices," he said.
He also said that the country would not come out from recession this year unless governments in the US, Europe and Far East took simultaneous emergency action. ''Coming out of America in the next few weeks will be a major, major stimulus package that will help the rest of the world. Other countries in Europe are about to make decisions themselves about the future and I think that is very, very important as well.''
With all major countries from Australia to Japan to the US looking towards the now third-largest economy, China to bail out the rest of the world, Britain has also joined the bandwagon with Brown saying, ''If, for example, China could create more domestic expansion itself, then the world would be going in harmony, going in tandem, to deal with the crisis.''
Brown said that the plans he was coming out with will help Britain battle the recession and added that he was ''using every weapon'' to fight it.
That statement was ridiculed by shadow chancellor George Osborne, who said the just released figures by the Office for National Statistics clearly indicated that Britain faced the ''worst recession for a generation'' and Brown and Alistair Darling, should take the blame as they had made ''optimistic'' forecasts last year.
When asked on the BBC radio talk show on the mistakes he made when he was the Chancellor, Brown said that economic policy had been focused on bringing low interest rates and a low-inflation economy.
"We also believed that there was a possibility of institutional failure in the banking and financial system so we did all sorts of exercises, simulation exercises. We had the FSA put in place - I think people recognise it's one of the best regulators, not one of the worst - but what we didn't see, nobody saw, was the possibility of complete market failure, that markets seized up across the world."
His economic policies, however have come in for flak even from his own part members and MPs, John McDonnell, the left-winger who chairs the Left Economics Advisory Panel (LEAP), blaming the governments economic failures said that the government had consistently failed to recognise the seriousness of the plight of the country's economy and the figures not only confirm a recession, but point to a depression - especially in light of the Government's failure.''
One MP even said that very soon the UK will be forced to seek the International Monetary Fund for a cash bailout, which was ridiculed by Brown.
Yesterday's figures forced the pound down to a new 23-year low against the dollar and the FTSE fell below 4,000 mark for the first time in more than a month.
Since October, the Bank of England has slashed borrowing costs by three-and-a-half percentage points and with the new figures released, the government may cut rates further from the current 1.5 per cent to zero to battle the recession.