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The Bank of England tonight told the Government to get the public finances back in order after a leading global think-tank painted a bleak picture of the UK economy.
Governor Mervyn King said the scale of the budget deficit "is truly extraordinary" after the Organisation for Economic Co-operation and Development warned Britain will plunge deeper into the red next year than any other major nation.
The OECD also warned the UK recession will be even more stark than expected and the recovery slower than in the rest of the world.
King said the size of the ballooning deficit - which the OECD predicts will hit 14% of gross domestic product next year - "reflects the scale of the global downturn" as tax receipts dwindle and borrowing soars.
"But," King told MPs on the Treasury Select Committee, "it also reflects the fact that we came into this crisis with fiscal policy itself on a path that wasn't sustainable and a correction was needed.
"There will certainly need to be a plan for the lifetime of the next parliament, contingent on the state of the economy, to show how those deficits will be brought down."
The OECD also urged the Government to produce "a strong and credible" framework for reducing debts.
It came as Gordon Brown and David Cameron clashed in the House of Commons over spending cuts after the general election.
The Paris-based OECD forecast that the UK economy would shrink by 4.3% this year - the biggest one-year fall in output since 1945 and worse than the 3.7% decline forecast in March.
It also said the economy will stagnate next year, leaving the recovery in the UK, along with the eurozone, behind other major nations including the US and Japan.
The outlook was far bleaker than that of the Treasury which forecast a decline of 3.5% this year to be followed by growth of 1.25%.
And in another blow to those who have been hoping that the UK economy will be able to stage a powerful recovery in the next 12 to 18 months, the OECD warned that unemployment in the UK will rise from its current level of 7.2% to nearly 10% next year leaving three million workers jobless.
The OECD said in its quarterly economic outlook: "The economy is in a severe recession.
"The pick-up will be sluggish, as the adjustment of households' and firms' balance sheets and expected reductions in the size of the financial and housing sectors will take considerable time."
King and fellow monetary policy committee members told MPs the latest signs on the economy have been encouraging but the jury is still out on whether recovery is in the bag.
"The sharp falls in output seem to have come to an end But it is difficult to be confident in a rapid recovery," King said.
Deputy governor Charles Bean said there was "a considerable degree of uncertainty about the strength of the upturn" and MPC member Paul Fisher said any recovery "will come in fits and starts".
Fellow MPC member Andrew Sentance said: "I think I'd see this as evidence that the economy is reaching some sort of bottom of the fall in output.
"I would expect that to be followed by recovery in output, I think the question is we can't say how strong that's going to be."
Reader views (19)
It is clear now that Bean Bruun and his never-going-away sidekick Lister Derling are cheats like all knowledgeable economists have explained.
- Jacqueline, Hampstead, London
I believe Mervyn King to be more competent than Crash and Liz Darling.
- Steveo, Islington, London
Keith Price - can't you take off your rose-tinted glasses for once mate!? Look around you at the devestation that blair and brown have caused, not just to the economy. I could understand it if you lamented the passing of old labour but to try to justify new labour, well that's impossible.
- Chris, Brighton, England.
No surprise to see that the rest of this government and their supporters are as equally deluded and out-of-touch as the unelected and very unwelcome Gordon Brown.
This is a global recession in which Britain will suffer worse than most. It just reiterates what a hideous mess Blair, Brown and co have made of the economy (and just about everything else they’ve touched.)
- Xtremely Worried, Notsureanymore
We will pay dearly for Labour's economic incompetence. Look to Germany or Japan if you want to see what happens to countries which attempt to borrow their way out of recessions. Germany did this in the 90s because of the huge cost of reunification, in Japan they did it in response to the boom and bust in the early 90s. The result in both nations was a ten year slump.
- Matt, London UK
Keith, it may be a worldwide recession, but no single country is in quite such as mess as poor old UK Ltd. And when did it EVER make sense to "spend, spend, spend" when things were tight?
- Marianne, SW France/London
Oh don't worry about the deficit Mervyn, the elite will always be all right (the politicians, the bankers, the corporate heads, you). It's the rest of us who will have to pick up the tab, work even harder, and get nothing in return for it, aside from higher taxes and bitterness
- Stuart, London
i run a small business, and it seems of late that the people i interview are not interested in working.
it seems that many people do not want to work because they will be giving up too many benefits that it is not worth it, or else they only want to work a certain amount of hours to entitle them to get more benefits!!
i imagine this has cause a huge amount of this deficit and it needs to be addressed.
- Gp, london, UK
It must be common sense to assume that proper recovery will only come when the debt is repaid.
There is no magic solution and neither must there be any return to the bad old days.
No mystery here-If you are in debt at home--you pay it off, look at your income/outgoings and then live within your means.
- William Grierson, Kimpton-UK
THE LAUGHING POLICEMAN SOUND, SEEMS MUSIC TO MY EARS, LOL LOL DOOM AND GLOOM AND PRUDENCE AND MORAL COMPASS ,LOL LOL LOL HO HO HA ,NEW LIEBOR WOH HA HA WO HA HA LOL LOL I NEED TO SETTLE IVE GOT ME DINNER TO MAKE HO HA H A , OH JEZ.
- James Fennessey, london
Hey Mervyn
When you stop buying their bonds, they will address the deficit.
- W Butler, London
Brown and Darling wreck Britain financially.
Scotland gains independence, signs up as another little Euro Statelet, continues in it's parasitis way with all the resultant benefits that make the Barnet formula look like small beer.
England picks up the tab as always
Job done!
- Steve, Brentford
Watched Gordon Brown on Prime Ministers Question Time, think he needs locking away, something not right.
- Rob, Rock Ferry Wirral
great britain is bankrupt, it's a failed state.
the elite run a system of rewards for failure.
the government gives the public misleading data.
the police are operating a police state.
and we need foreigners to warn us we're on fire.
can anyone come up with an exit strategy? anyone?
- Oithieves, london, UK
Thank you Gordon Brown, for your leadership and creating the conditions for this to happen. "
Tou are so foolish if you think Gordon caused a recession anywhere in the world. It is a worldwide recession remember Dai
- Keith Price, Luton, England
This OECD report amply gives the lie Gordon Brown's promises of ever rising public expenditure (or investment as he likes to pretend). There seems to be no limit to the the deception and dissembling he will employ in his attempt to hold on to power, the trappings of which he would have us believe hold no interest for him. Is it delusion or fakery?
- James Elliott, Eastbourne UKThis report amply illustrates
Our leader clearly believes all these independent bodies are wrong, that is why he is confident he can still increase expenditure year on year without raising taxes.
Although he did also tell us that the raid on our pension funds would have no repercussions, the funds would keep grow and everyone would get bigger and better pensions.
- Ian, Reading, England
This week doom and gloom,next week recession is over.What is the point of all these "experts".Lets just see what happens.
- Colin, barking essex
Thank you Gordon Brown, for your leadership and creating the conditions for this to happen.
Your place in history is assured.
- Dave Davies, Basingstoke, Hants
