Watch out for recession - survey

The report, from the economic analyst Business Strategies, predicts job losses are on the way in the region, with factory output expected to fall.

But the North-East won't be alone. Large parts of the UK - including London - could fall into recession next year as the impact of the global downturn and the US terrorist attacks is felt.

The survey said, in a worst case scenario, the North-East, Yorkshire and the Humber, the West Midlands and the North-West could all be hit by recession.

The capital also faces a 25 per cent risk of recession, as lay-offs in the City and the drop in tourism impacts.

But its overall forecast concluded the UK should escape recession - and predicted just a five per cent chance of outright recession in the UK.

It said UK economic growth could be pushed down to 1.7 per cent next year - the lowest for a decade - although growth may be as low as 0.4 per cent.

To buoy the economy, Business Strategies said interest rates could be cut from the current four per cent by a further 0.25 per cent in January.

It added that assuming a worst case scenario, rates could bottom at 2.5 per cent or even lower.

Business Strategies economist Corinne Church said: "In the current circumstances, there is a great deal of uncertainty.

"In the event of a recession, the North-East economy can be expected to contract by 0.4 per cent next year.

"Economic growth in the North-East is sluggish, and overall will expand at a rate well below the UK average this year and next. Growth of 0.9 per cent is forecast this year and one per cent next year."

She added: "That contrasts sharply with last year, when the region's economy grew by nearly two per cent, and compares with a national average of 2.3 per cent for this year and 1.7 per cent for next year."

Dr Neil Blake, research director at Business Strategies, said the UK was looking at mildly positive growth, while the risk of outright recession was bigger for some regions than for others