Gordon finally has to use that R-word

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The Prime Minister conceded the country was set for a slump amid warnings from Argos and Homebase that trading ahead of Christmas is "tough and volatile".

Mr Brown has previously avoided the word recession to describe the economic situation facing the country. But after a gloomy speech by Governor of the Bank of England Mervyn King last night, he finally used the "R-word", to jeers from Tory MPs.

"The Governor of the Bank of England said last night that not since the First World War has the international banking system been so close to collapse and I agree with him.

"Having taken action on the banking system, we must now take action on the global financial recession which is likely to cause recession in America, France, Italy, Germany, Japan and - because no country can insulate itself from it - Britain, too. That is why we are giving our undivided attention-to helping families and businesses."

Mr Brown's decision was taken after Cabinet colleagues advised that it would be best to prepare people for a recession before official figures confirm it. Terry Duddy, chief executive-of Home Retail Group, the company behind Argos and Homebase, said he was far from optimistic.

"If Mervyn King says we are going into recession, a lot of people are going to be very nervous," he said.

Homebase stores' sales are down 10 per cent in the six months to the end of August. Argos sales were down three per cent over the same period, but by much more this month.

The group expects to hire only 14,000 temporary staff in the Christmas run-up - down from 20,000 last year. Supermarkets are holding up relatively well, as consumers eat in more.