The recession warning by Bank of England governor Mervyn King echoes the opinions of many other financial experts.

The European Commission, the Organisation for Economic Development and the CBI have all said the UK economy started shrinking in July.

The plunging housing market, rising energy bills and the credit squeeze have all been cited as reasons for the economic pessimism.

A previous warning came from forecasters at the Ernst & Young ITEM Club, who said the economy is already in recession and will shrink by 1% next year.

Official data shows the UK economy was flat in the second quarter this year, and most experts predict that third-quarter figures will show the economy contracted by 0.2%.

Other statistics indicate slowing activity since July, including rising unemployment and a marked setback for the UK's service sector, which makes up three-quarters of the economy.

One survey showed the sector shrank at its fastest rate for more than 12 years last month to post its fifth consecutive month of decline.

The Chartered Institute of Purchasing and Supply's (CIPS) services index, which measures overall activity for the industry, was 46 in September. A reading below 50 signals industry contraction. It was down from 49.2 in August, the biggest drop since the series began in 1996.

Official data from the Office for National Statistics (ONS) also showed the country's service sector failed to grow during the three months to July for the first time since August 2002.

In evidence of tighter household budgets, hotels and restaurants suffered the biggest downturn during the period, the ONS said.

Howard Archer, chief UK economist at Global Insight, said: "The sharp decline in service sector activity in September leaves little doubt that the economy contracted in the third quarter and is on its way into recession."

Copyright © PA Business 2008