Alistair Darling will concede in a speech on Wednesday that the economic downturn is likely to be deeper and longer-lasting than first thought.

While Gordon Brown insisted yesterday that Britain was “better-prepared” than other economies, Treasury officials no longer believe the UK economy will escape lightly.

In the annual Mais lecture in the City the chancellor will attempt to reassure markets that the government has not lost control of public finances while acknowledging that the downturn has had a big impact on government revenues.

Figures on Friday showed that the economy shrank for the first time in more than 16 years, with gross domestic product dropping by 0.5% in the third quarter, a larger fall than expected.

The Treasury has argued that Britain’s economic flexibility, particularly in the jobs market, would stand the economy in good stead.

Officials still believe this but think it will be offset by the banking crisis. Britain has a larger financial sector than most European economies and will thus be worse affected by the crisis.

The Treasury has not yet finalised its new forecast for the economy, which will be published in the prebudget report next month. Several forecasters have revised their predictions downwards this weekend. Some now warn that the recession will be longer and deeper than in the early 1990s.

Downing Street put out the word yesterday that Brown is still taking an active role in the global financial crisis. With several so-called emerging market economies in difficulty, including Hungary, the prime minister phoned the Hungarian prime minister, Ferenc Gyurcsany, and also Dominique Strauss-Kahn, the managing director of the International Monetary Fund.

He urged Strauss-Kahn to make IMF assistance available to Hungary as soon as possible.

“This is part of the crisis but it is also a European issue,” a Downing Street spokesman said. The Washington-based IMF has been in negotiation with Hungary, Iceland, Belarus, Ukraine and Pakistan and is preparing to lend money to all countries in difficulty.

At a special summit in Beijing yesterday, Asian and European leaders tried to boost confidence among consumers and businesses in their ability to avoid a deep and damaging global recession Governments said they would continue their efforts to stabilise the banking system and restore normality to their economies, agreeing to “undertake effective and comprehensive reform of the international monetary and financial systems”.

Wen Jiabao, the Chinese prime minister, said China, now emerging as the “locomotive” for the global economy, would stimulate the economy through domestic spending.

“We must use every means to prevent the financial crisis impacting growth of the real economy,” he said at the end of the two-day 43-nation summit.

But Ban Ki-moon, the United Nations secretary-general, said the crisis could be the last straw for many of the world’s poorest people. “It threatens to undermine all our achievements and all our progress,” he said. He warned that the global downturn would undermine efforts to eradicate poverty and disease, fight climate change and promote development.

Leaders of the world’s 20 largest economies will meet for a special summit in Washington on November 15.

As pound falls, bonuses rise

A gilt-edged lining has appeared in the storm clouds over the world’s economy for tens of thousands of City bankers.

The spectacular collapse of the pound against the dollar in recent days is set to give a 25% boost to the annual bonuses of an estimated 50,000 workers at Goldman Sachs, Morgan Stanley and other American financial and law firms in London. This is because the bonuses are calculated in dollars and the pound has depreciated by about a quarter against the American currency in the past three months, boosting the relative value of the extra payments.

Last Friday the pound fell by 9.6 cents during the day, although it recovered slightly before the end of trading.

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