Warren Buffett, America’s best-known investor and the world’s third-richest man, gave warning yesterday that the United States was already in a recession and a deep and prolonged slowdown could not be ruled out.

Mr Buffett, the billionaire who controls the Berkshire Hathaway global conglomerate, said: “By any common-sense definition, we are in a recession.” He added that although the economic environment is “nothing like ’73 or ’74 yet”, when the US suffered a severe recession and surging oil prices, there remained a possibility of a repeat of those conditions.

He also hinted that the ailing stock market may have further to fall by saying that shares were “not cheap”. The S&P 500 composite has fallen more than 9 per cent this year. Mr Buffett acknowledged that “I find more things to look at now than I did six months or a year ago”, but added that conditions had changed “more dramatically” in the bond markets.

Alongside his comments on the economy, Mr Buffett said that he had withdrawn his offer to bail out America’s bond insurers after they had failed to accept his price. He explained that he was no longer offering to guarantee $800 million of local government-issued bonds that had been backed by MBIA, Ambac Financial and FGIC, the bond insurers.

Three weeks ago, Mr Buffett offered to reinsure the state bonds, which are sold by local government bodies to finance projects such as road building, at a big premium.

Mr Buffett’s predictions came amid evidence that the slump in residential construction has spread across America’s building industry after official numbers showed a sharp slowdown in public and corporate projects. Grim construction and manufacturing data published yesterday suggested that the credit crisis had hit company spending, spilling over from the financial sector across corporate America as a whole.

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