US Retail Sales Fall

US retail sales were down 1.2 pc. More than everyone expected. Evidence that the crisis on Wall Street had extended to Main Street came with a 1.2pc fall in US retail sales, far worse than the 0.7pc expected and the steepest decline since August 2005.

"People have dropped shopping. This happened even before the total meltdown in the stock markets," said Joel Naroff at Naroff Economic Advisors, implying worse was to come.

The figures appeared to confirm the view of San Francisco Federal Reserve Bank President Janet Yellen, who became one of the first US officials to use the dreaded R-word. "The US economy appears to be in a recession," she said, speaking in Silicon Valley.

More tellingly, Jeffrey Frankel, one of the seven members of America's National Institute for Economic Research – the body that officially decides whether the US is in recession – told The Daily Telegraph: "I think the chances are very high that we are currently in recession."

In Britain, the focus was on job figures showing unemployment shooting up at its fastest pace for 17 years – when the country was gripped by the early 1990s' downturn.

The Office for National Statistics said the numbers of unemployed rose 164,000 to 1.79m in the three months to August – an ominous sign as jobless figures are a lagging indicator of economic health.

David Blanchflower, a member of the Bank of England's Monetary Policy Committee, said he now fears unemployment could top 2m by Christmas.

"We may have avoided financial Armageddon. But the UK is heading into a severe recession and most of the economic pain still lies ahead," warned Michael Saunders, economist at Citigroup.