Sterling slumped to its lowest level against the dollar in five years on Wednesday as financial markets came to terms with the prospect of a deep recession and Gordon Brown conceded that the economy was about to contract.

Stocks in London also traded sharply lower as it became clear that officials were not talking about a technical recession, or a couple of quarters of shrinking output, but a much more prolonged and deep downturn. In the US, recessionary fears also hit the markets.