Britain is now in recession after the banking system came closer to collapse than at any time since the beginning of the First World War, according to the Governor of the Bank of England.

Mervyn King has become the first major UK economic policy maker to warn explicitly that Britain is heading into technical recession, but he said that history was likely to judge the Government’s £37bn banking recapitalisation as the turning point in the sector’s crisis.

His bleak assessment was reinforced by two gloomy surveys from the CBI and the National Institute of Economic and Social Research. In a speech in Leeds last night, Mr King laid bare the devastation left by the worst financial crisis in living memory, predicting that house prices would fall further and that economic hardship would last for years.

He said: 'The combination of a squeeze on real take-home pay and a decline in the availability of credit poses the risk of a sharp and prolonged slowdown in domestic demand. It now seems likely that the UK economy is entering a recession.'

Financial Times, The Times, Daily Telegraph, The Independent