Britain is about to enter a bad recession, warns the Bank of England Governor Mervyn King.

The problem in Britain has been the ocean of credit that fueled the housing price bubble. Now that ocean is drying up, there is an inevitable downturn. But King seems to saying that we might be turning the corner. "We are far from the end of the road back to stability,'' King said. "But the plan to recapitalize our banking system, both here and abroad, will I believe come to be seen as the moment in the banking crisis of the past year when we turned the corner.''

In other words, he thinks we are at the beginning of the end. But he's wrong. If anything, we are the end of the beginning because credit will continue to contract and there are warnings banks are facing losses of at least $1 trillion. And the reality is that no-one knows where and when this will end.

Still, King's words should not be taken lightly. As the Financial Times points out, it's marks a big change of direction for him. "Until last night, Mr King and the Bank had refused to utter the word "recession", insisting that the term should only be used to signify a deep contraction in output and not two successive quarters in which the economy might shrink a little."

Meanwhile, the National Institute of Economic and Social Research (NIESR) has warned that Britain's economy will contract for four quarters in a row, and the downturn will be worse than anything experienced in other G7 countries.