Britain will plunge into recession this year to join the ranks of the worst- performing economies in Europe, the European Commission said yesterday.

In a blow to the Government, which has received a lukewarm reception for its plans to rejuvenate the economy, the Commission said that the economy would shrink in the second half of this year, pushing it into recession for the first time since the early 1990s. A recession is defined as two consecutive quarters of shrinking output.

The Commission also cut its forecasts for growth in many other European countries, as high commodity prices, turmoil in financial markets and slumping house prices took their toll.

Recession is also looming for Spain, while Germany, Europe’s biggest economy, is in the middle of a recession, the Commission said. However, Britain is among the hardest-hit economies, with an expected 0.2 per cent fall in output in the third and fourth quarters of the year.

Howard Archer, of Global Insight, the consultancy, said that the UK had joined the Republic of Ireland, Spain and Italy among the worst-performing economies in Europe. “It is no coincidence that Spain and Ireland have a housing market that is very similar to ours,” he said. “Despite a possible recession in Germany, our economy is fundamentally in a worse state.”

The Commission cut this year’s growth forecast for the 15 nations using the euro from 1.7 per cent to 1.3 per cent and said that Britain was set to slow even more rapidly, cutting its growth forecast from 1.7 per cent to only 1.1 per cent. This is a stark reversal from last year, when the UK’s economic growth outpaced the eurozone’s by a margin of 0.5 per cent. Indeed, Britain has underperformed eurozone growth in only two other years since Labour came to power in 1997.

However, Jean-Claude Trichet, the President of the European Central Bank, remained upbeat about the future outlook. “We will have gradual recovery over the next years after the present depressed episode,” Mr Trichet said.

Philip Shaw, chief UK economist for Investec, said that a recession in Britain was now more than likely. He said: “We are stronger than the stragglers in Europe, but we are no longer stronger than the eurozone as a whole.”

The UK economy has already ground to a halt, ending 16 years of consecutive growth, failing to grow at all between April and the end of June, official figures show. Dismal news from manufacturing and service companies over recent weeks has heightened fears that the economic downturn is set to intensify.

There was more disappointing news yesterday as it emerged that the falling pound had not significantly boosted exports in July. Economists fear that slumping demand could also curb the benefits of UK goods becoming cheaper abroad in the months to come.

Paul Dales, of Capital Economics, said: “A major surge in exports over the next six months or so seems unlikely when the eurozone, the UK’s largest export market, remains so weak.”

Last week the Organisation for Economic Co-operation and Development said that the UK was set fall into recession this year in the worst economic performance of any of the richest G7 nations.

Economists said that slumping activity was likely to prompt a rise in unemployment, with the British Chambers of Commerce saying that unemployment could rise by 300,000 and even top two million by the end of the year — levels not seen since Labour came to power in 1997.

Hopes that UK inflation may be set to fall were boosted after the Commission forecast that it would stay at the present high of 4.4 per cent in the third quarter before falling to 4.3 per cent in the year’s final three months.

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