The Government moved to dampen expectations over the scale of forthcoming tax cuts yesterday, as the Bank of England prepared to ditch its forecasts and confirm that Britain is entering a recession.

The Treasury and No 10 played down suggestions that the value of tax cuts could reach £15 billion - the level some economists say is needed to kickstart the economy - and called weekend briefings unhelpful.

Gordon Brown restated his enthusiasm for tax cuts, however, congratulating China for a four trillion yuan (£375 billion) stimulus package that includes a £11 billion cut in business tax.

The Prime Minister, in his annual Mansion House speech tonight, will urge global leaders to adopt a progressive approach to the downturn and call for greater coordination of fiscal and monetary policy.

Further tax cuts, including more help for those affected by the abolition in April of the 10p income tax band, are likely to be announced by Alistair Darling as part of the PreBudget Report (PBR) before the end of the month. The Chancellor is expected to extend the temporary assistance for the 4.2 million households affected by the abolition of the band by another year, at a cost of at least £2.7 billion.

However, 52 Labour MPs have signed a motion calling for an additional commitment for the 1.1 million households that were not compensated in May, which could push the cost significantly higher.

On Wednesday the Bank of England is expected to make a significant U-turn by announcing the biggest cuts to its growth forecast in more than a decade and confirming that a full-blown recession is inevitable.

In August its inflation report predicted growth of 0.5 per cent next year and 2.25 per cent in 2010, but economists now expect its forthcoming quarterly assessment to forecast a decline of between 1 per cent and 1.5 per cent next year. Unemployment figures, which will be released the same day, are likely to show the jobless total hovering just below two million.

Mr Brown has led an international effort to encourage world leaders to increase borrowing and cut taxes, saying that fiscal policy should support economic growth, and promising: “We are looking at what we can do to help.”

No 10 denied that this amounted to confirmation that tax cuts were imminent, pointing out that the Government had already cut taxes by £4 billion this year with the temporary suspension of stamp duty and freezing of fuel duty. However,there isgrowing momentum in the Government and the Labour Party for help for lower-income families during the downturn.

John McFall, chairman of the Commons Treasury Select Committee, added to the pressure by calling for further tax cuts for the lower-paid. “I want to ensure that those who were taken out of the 10p tax bracket don’t go back in and get taxed and that a number of others are taken out of the tax threshold,” he said.

Speculation that tax cuts might reach £15 billion surfaced after Robert Chote, director of the Institute for Fiscal Studies, suggested that extra borrowing close to 1 per cent of national output was needed to provide a “meaningful” boost to the economy.

The Conservatives hinted yesterday that they were planning their own proposals for emergency tax cuts, but emphasised that they would not be funded by borrowing. A spokeswoman refused to give details, but a Tory source suggested that it would not be universal and would come “in an area most likely to be affected by the recession” - likely to be connected with business and unemployment.

The Tories face a dilemma if there is a large tax cut in the PBR. David Cameron has rejected any increases in borrowing - which would pay for the cut - but the Tories are unlikely to want to be the only political party to oppose lower taxes.

Despite signs of a Brown bounce in the Glenrothes by-election, a new poll indicated that the Tories had held their 13-point lead over Labour. ICM put the Conservatives on 43, Labour on 30 and Liberal Democrats on 18.

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