Prime Minister Gordon Brown has told parliament that the global economic downturn was “likely to cause recession” in Britain, echoing the sentiments of the country's central bank chief.

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“Having taken action on the banking system, we must now take action on the global financial recession, which is likely to cause recession in… Britain, too,” Brown said during his weekly questioning session in parliament.

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“We are giving our undivided attention to helping families and businesses.”

A recession is defined as two consecutive quarters of negative economic growth.

GDP figures expected

Crucial data out Friday is expected to show that the British economy shrank in the third quarter after zero growth in the second.

Brown said the financial crisis was also likely to lead to recession in the United States, France, Italy, Germany and Japan.

The benchmark FTSE-100 stock market index deepened losses and the pound, which earlier touched a five-year low against the dollar, also fell.

His remarks come a day after Bank of England Governor Mervyn King said Britain was “likely” entering recession, with the credit crunch and high inflation combining to pose “the risk of a sharp and prolonged slowdown in domestic demand.”

Banking system 'close to collapse'

Speaking to a meeting of business leaders in Leeds, northern England, King said it was “difficult to exaggerate the severity and importance of those events”.

“Not since the beginning of the First World War has our banking system been so close to collapse,” he said in a statement with which Brown concurred.

But King said the government's re-capitalisation of three high street banks earlier this month laid the way for a “long, slow haul to restore lending to the real economy, and hence growth of our economy, to more normal conditions”.

Banks nationalised

Britain has had to nationalise two major domestic lenders, separate from the recapitalisation programme, as a result of the credit crunch and earlier this month unveiled a half-trillion-pound (815-billion-dollar, 635-billion-euro) rescue package for the country's banking system.

The country has also had a dispute with Iceland over billions of pounds of deposits by British individuals, local authorities and government agencies in collapsed Icelandic banks.

Britain's economy has struggled in recent months, with inflation reaching a 16-year high in September, while unemployment stands at an eight-year high.

The economic troubles, along with turmoil in the financial markets, prompted central bank policymakers to decide to cut interest rates unexpectedly in a co-ordinated decision with other major central banks earlier this month.

Their unanimous decision to cut rates has sparked speculation that more rate cuts are in the offing.

Urgent action on repossessions

Mortgage holders in Britain have also been badly hit, and Brown said the government was giving “new guidance for the judiciary to halt or adjourn court action on repossessions unless alternative options that help the homeowner… have been fully examined first of all.”

He mooted extending mortgages, changing their type or deferring payment as possible alternatives.

“We are determined to do everything we can to help homeowners avoid repossessions,” he said.

Brown also said it was “right” to stimulate economic growth through government borrowing during a downturn, days after finance minister Alistair Darling said Britain would boost public spending to help the economy.

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