British consumers are tightening their belts and cutting back on everything from shoe shopping to trips to the pub, according to the latest survey by the Bank of England on business conditions.

The Bank's contacts around the country report a significant slowdown from late August to late September in spending on consumer services from financial services to pubs, restaurants and leisure attractions.

The survey of business conditions is the latest indicator that the UK is on the brink of a full-blown recession and that consumers and businesses are cutting back in anticipation of harsh times.

Last night, Mervyn King, Governor of the Bank of England, said that the UK is teetering on the brink of a prolonged recession.

Today's report on business conditions backs up the findings of the CBI, which said yesterday that its quarterly guage of industry's confidence fell to its lowest level for 18 years last month.

The CBI also reported that manufacturing orders fell to a five-year low.

According to the Bank, retail sales have slowed starkly as households face mounting pressures on their budgets.

A slowdown in small-ticket discretionary spending for clothes and shoes is reported while consumers also appear to be choosing lower-priced unbranded products, discount supermarkets and internet sales.

Sales of big-ticket items, such as furniture and electrical goods, usually associated with household moves, have also contracted, as has spending on home removals. Yesterday, HM Revenue & Customs reported that the number of homes sold fell to 59,000 in September from 126,000 a year ago.

As previously revealed, demand for cars with August registration plates is well below sales a year earlier.

Businesses are cutting back on capital spending, according to the Bank's sources. Plans for investment in commercial property have been reduced, with some major retail development schemes being delayed and office-building activities slowing.

Companies in other sectors are increasingly deferring their investment plans, although investment in utilities and telecommunications remains robust.

A tightening in credit conditions has been experienced by many companies in recent months but the cut-back in investment plans by many businesses has more to do with the outlook for demand than available credit, the Bank said.

In the run-up to Christmas, many retailers also say they intend to hold lower levels of stock than usual.

There has also been a slight dip in demand for exports, largely due to weakening demand from consumers in the euro zone. Demand from customers in the Middle and Far East continues to grow strongly, however the Bank's sources have become pessimistic about the outlook for this demand.

Businesses say they are looking to employ fewer people and any difficulties they had seen in recruitment have also declined.

A growing number of manufacturing workers are on shortened hours to reduce spare capacity. Shortened working hours are also being reported in the retail sector.

On the positive side, input cost inflation has eased, reflecting falling oil prices. However, prices of oil-derivatives products, such as plastics, have not yet started to fall and some increases in utility prices are expected as businesses reach the end of fixed-price contracts.

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