Economy on the 'brink of recession'

The British Chambers of Commerce's (BCC) warning came as housebuilder Persimmon cut 1,100 jobs amid plummeting sales and Government figures showed house price growth falling for the seventh month in a row.

The growing pessimism spread to the stock market to push London's FTSE 100 Index into "bear market" territory - with shares at one point trading more than 20% below last June's peak.

Prime minister Gordon Brown insisted at the G8 summit in Japan he was determined to lead Britain through the current economic downturn, but acknowledged the "very difficult times" faced by the country.

The BCC said the UK was "at serious risk" of recession as falling orders and rising costs tighten the squeeze on business, after its latest quarterly survey showed "alarming" declines.

But inflation pressures caused by high oil, food and electricity prices means that Bank of England policymakers are unlikely to offer relief to homeowners and businesses with an interest rate cut this week.

Most economists predict borrowing costs will be held at 5% for the third month in a row because inflation is currently more than 1% above the Bank's 2% target at 3.3%.

The BCC found that confidence among services firms - which account for almost three-quarters of the economy - is at its lowest ebb since 1990.

The organisation's economic adviser David Kern said the survey of almost 5,000 firms showed a "menacing deterioration" in UK prospects.

According to the Department for Communities and Local Government, the average cost of a home in the UK dropped by 0.3% during May to hit a 26-month low.