The economy is already in recession and could enter a prolonged downturn, according to Andrew Sentance, who sits on the Bank of England’s Monetary Policy Committee.

In a speech at a seminar in London, Mr Sentance said: “It now seems to me more likely than not that we will see a fall in GDP for the third and fourth quarters of this year.” A recession is defined as two consecutive quarters of negative growth.

He said that the chances of a dramatic downturn, with more than a year of declining output, such as those seen in the previous recessions of the mid1970s and early 1980s and 1990s, was rising. “The severe stresses in the financial system over the last month and the downside news from the real economy have increased the risks of a bigger and more sustained downturn,” he said.

Mr Sentance, who is regarded as one of the hawks on the committee, also indicated that he was minded to vote for more rate cuts as more evidence emerged that inflation was close to its peak.

The Bank has been reluctant to cut rates in recent months as inflation soared far above the Bank’s 2 per cent target, rising to a 16-year high of 4.7 per cent in August. Initial signs of an easing of inflationary pressure coupled with the need for urgent action to help to curb the effects of the financial crisis prompted the Bank last week to make an emergency half-point cut to 4.5 per cent.

Additional evidence of slowing inflation emerged yesterday as factory gate prices fell for the second month in a row. The prices charged by producers fell by 0.3 per cent in September after a 0.7 per cent decline in August, official figures showed. Core prices, which exclude volatile petrol, food and tobacco prices, also fell, by 0.1 per cent.

Figures out today are tipped to show that inflation rose to more than 5 per cent last month, but the Bank has forecast it will fall sharply in the next few months.

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