The long-awaited quarterly Inflation Report provided gloomy reading with the Bank now expecting the economy to virtually ground to a halt in the first three months of next year as the surge in petrol and utility bills eat away at consumers' spending power. The Bank expects the economy to grow just 0.1pc in the first quarter, down from a projection of just 1pc made at its last report in May. The downward revisions will be embarrassing for Chancellor Alistair Darling, who is still forecasting that the flagging economy will muster growth of 2pc this year and 2.5pc in 2009.

Mr King said that the outlook for both growth and inflation had deteriorated more sharply than it had expected when it published its last quarterly report in May. "It may still be summer but there is a feeling of chill in the economic air," Mr King said at a press conference today. "This adjustment to our economy cannot be avoided. As a result, inflation is rising and growth is slowing."

If the UK does grow at such a low level, the chance of a technical recession, with two successive quarters of contraction, is significant. MORE THAN 20,000 ADDITIONAL BRITONS CLAIMED BENEFITS IN JULY, THE BIGGEST INCREASE SINCE THE UK RECESSION IN 1992

The writedowns and credit losses at more than 100 of the world's biggest banks and securities firms rose after UBS AG reported second-quarter earnings today, which included $6 billion of charges on subprime-related assets. "IT JUST KEEPS SPREADING FROM ONE ASSET TO ANOTHER, SO IT'S HARD TO KNOW WHEN THESE WRITEDOWNS WILL STOP," said Makeem Asif, an analyst at KBC Financial Products in London. "The U.S. economy needs to stabilize first. But even then, Europe could lag and recover later. There's still a lot more downside."

The collapse of the U.S. subprime mortgage market last year has saddled banks worldwide with $501 billion of losses from declining values of securities tied to all types of home loans and commercial mortgages as well as leveraged-loan commitments.

In his most outspoken intervention on the issue of GM food, the Prince said that MULTI-NATIONAL COMPANIES WERE CONDUCTING AN EXPERIMENT WITH NATURE WHICH HAD GONE "SERIOUSLY WRONG". The Prince, in an exclusive interview with the Daily Telegraph, also expressed the fear that food would run out because of the damage being wreaked on the earth's soil by scientists' research. He accused firms of conducting a "gigantic experiment I think with nature and the whole of humanity which has gone seriously wrong".

RELYING ON "GIGANTIC CORPORATIONS" FOR FOOD, HE SAID, WOULD RESULT IN "ABSOLUTE DISASTER". "That would be the absolute destruction of everything… and the classic way of ensuring there is no food in the future," he said. "What we should be talking about is food security not food production - that is what matters and that is what people will not understand." He said that the scientists were putting too much pressure on nature. "If you are not working with natural assistance you cause untold problems. which become very expensive and very difficult to undo.

"And if they think its somehow going to work because they are going to have one form of clever genetic engineering after another then again count me out, because that will be guaranteed to cause the biggest disaster environmentally of all time." When challenged over whether he was trying to turn back the clock, he said: "I think not. I'm terribly sorry. It's not going backwards. IT IS ACTUALLY RECOGNISING THAT WE ARE WITH NATURE, NOT AGAINST IT. WE HAVE GONE WORKING AGAINST NATURE FOR TOO LONG."

Russian President Dmitry Medvedev and Prime Minister Vladimir Putin's first order of business likely will be to try to thwart Ukraine's bid to join the North Atlantic Treaty Organization. "The MOSCOW AUTHORITIES WILL USE THIS OPPORTUNITY TO REMIND UKRAINE OF THE DAMAGES OF ALLYING ITSELF WITH NATO," said Geoffrey Smith at Renaissance Capital investment bank in Kiev.

"Russia may find it convenient to raise the level of tension with Ukraine in the run-up to the December NATO review," Citigroup Inc.'s London-based David Lubin and Ali Al- Eyd wrote in a note to clients. "If the conflict with Russia decelerates or reverses Georgia's integration with the West, A SIMILAR FATE COULD ALSO AFFECT UKRAINE." Ukraine has a large Russian-speaking population in the south and east that opposes NATO entry and looks to Moscow. Russian officials warn that if President Viktor Yushchenko pushes Ukraine into NATO, the nation may split in two.

A month ago, about 1,000 U.S. soldiers joined 600 Georgians and 100 from Ukraine, Azerbaijan and Armenia in joint exercises at the Vaziani military base near Tbilisi. Russia repeatedly bombed the base during this month's war. "THE AMERICAN ROLE IN THE REGION HAS BEEN WEAKENED," Jan Techau, a European and security affairs analyst at the German Council on Foreign Relations in Berlin, said in a telephone interview. "IT'S A REASSERTION OF RUSSIA'S DOMINANT ROLE IN THE REGION."

"The reason why little Yang was not chosen to appear was because we wanted to project the right image, we were thinking about what was best for the nation," Chen said in an interview that appeared briefly on the news website Sina.com before it was apparently wiped from the Internet in China. "The reason was for the national interest. THE CHILD ON CAMERA SHOULD BE FLAWLESS IN IMAGE, INTERNAL FEELINGS, AND EXPRESSION," said Chen, a renowned contemporary composer and French citizen.

He said the final decision to stage the event with Lin lip-synching to another girl's voice was taken after A SENIOR MEMBER OF CHINA'S RULING COMMUNIST PARTY POLITBURO attended a rehearsal. "He told us there was a problem, that we needed to fix it, so we did," he said, without disclosing further details of the order.

The ceremony directed by China's Oscar-nominated filmmaker Zhang Yimou and featuring more than 15,000 performers won high praise in China and overseas for its breadth, scope and flawless execution. However criticism began to build after it emerged that another part of THE OPENING CEREMONY HAD BEEN FAKED. Supposedly live pictures of fireworks depicting footprints moving from central Beijing's Tiananmen Square to the Olympic stadium in the north of the capital were actually partly computer-generated or pre-recorded for TV, organisers have admitted.

"This illustrates an important aspect of these Olympic Games," said Xiao Qiang, the director of the China Internet project at the University of California at Berkeley and former dissident. "IT IS ALL ABOUT PROJECTING THE RIGHT IMAGE OF CHINA with no respect for honesty or for the audience. I do not think the Chinese state realises how unethical this is, they don't understand what kind of values they are reflecting."

The girl in the red dress with the pigtails, called Lin Miaoke, 9, and from a Beijing primary school, has become a national sensation since Friday night, giving interviews to all the most popular newspapers. But the show's musical designer felt forced to set the record straight. He gave an interview to Beijing radio saying the real singer was a seven-year-old girl who had won a gruelling competition to perform the anthem, a patriotic song called "Hymn to the Motherland".

At the last moment a member of the Chinese politburo who was watching a rehearsal pronounced that the winner, a girl called Yang Peiyi, might have a perfect voice but was unsuited to the lead role because of her buck teeth.

Georgia says some details are unacceptable and the French mediator admitted difficulties lay ahead. Some 100,000 people are estimated to have been displaced by the conflict, which has created huge tensions in international relations.

On Tuesday, Russia announced its military activity in the area was completed and witnesses saw troops pulling out. The BBC's Gabriel Gatehouse in Georgia says fighting in the South Ossetia region does now seem to have ended. But despite the diplomacy and apparent withdrawal, rhetoric on both sides remained fiery and analysts were predicting a long road to peace.

Russia has held all the cards in this conflict and looks set to end up with both a diplomatic and a military victory, says the BBC's Caroline Wyatt in Moscow. IT HAS SHOWN ITS POWER WITHIN THE REGION AND THE WEAKNESS OF THE WEST, which has been unable and unwilling to come to Georgia's aid with anything other than words of support, our correspondent adds.

This vast naval and air strength consists of more than 40 carriers, warships and submarines, some of the last nuclear-armed, opposite the Islamic Republic, a concentration last seen just before the US-led invasion of Iraq in 2003.

While a massive deployment of this nature calls for long planning, its occurrence at this time cannot be divorced from the flare-up of the Caucasian war between Russia and Georgia. While RUSSIA HAS STRENGTHENED ITS STAKE IN CASPIAN OIL RESOURCES by its overwhelming military intervention against Georgia, THE AMERICANS ARE INVESTING MIGHT IN DEFENDING THE PRIMARY PERSIAN GULF OIL sources of the West and the Far East.

DEBKAfile's military sources name the three US strike forces en route to the Gulf as the USS Theodore Roosevelt, the USS Ronald Reagan and the USS Iwo Jima. Already in place are the USS Abraham Lincoln in the Arabian Sea opposite Iranian shores and the USS Peleliu which is cruising in the Red Sea and Gulf of Aden.

Officials will meet next month to renegotiate the agreement over the al-Ahdab field, said Iraqi Oil Minister Hussain al-Shahristani. He was wrapping up a three-nation tour to secure investment to revive his country's oil industry. "If agreement is reached very quickly then I expect them to start working right away," al-Shahristani said at a news conference.

China is the world's second-largest oil consumer and has been investing heavily in trying to secure access to foreign supplies. Beijing had been thought to be out of the running for major contracts in post-war Iraq, with the best deals going to the United States and its allies. But the upsurge in violence there has made the country less attractive to Western producers.

Another oil pipeline, which runs from Azerbaijan through southern Georgia into Turkey, is already shut. The closure comes as the International Energy Agency (IEA) warned that the conflict posed a threat to key oil and gas pipelines that pass through Georgia. "Renewed flows through Georgia could be further delayed if the line is damaged during the Russia-Georgia conflict"

The larger Baku-Tbilisi-Ceyhan (BTC) oil pipeline has been closed since early August following an explosion on the eastern Turkish section of the line. It is the world's second-largest pipeline and runs from Azerbaijan through southern Georgia into Turkey. It can transport up to 1.2 million barrels of oil a day. IT HAD BEEN HOPED THAT TRANSPORTING OIL THROUGH THE REGION WOULD MAKE THE WEST LESS DEPENDENT ON SUPPLIES FROM RUSSIA.

In the past five years bomb attacks claimed by Islamist groups have killed hundreds across the Indian cities of Mumbai, Delhi, Jaipur, Varanasi, Bangalore, Hyderabad and Ahmedabad. An Indian Muslim was even involved in the failed assault on Glasgow airport in July last year.

The National Counterterrorism Centre (NCTC) in Washington reports that the death toll from terrorist attacks in India between January 2004 and March 2007 was 3,674, second only to that in Iraq (in the same period, 1,000 died as a result of such attacks in Pakistan, the "most dangerous place on earth" according to the Economist, Newsweek and other vendors of geopolitical insight.).

To put it in plain language - which the NCTC is unlikely to use - INDIA IS HOST TO SOME OF THE FIERCEST CONFLICTS IN THE WORLD. Since 1989 more than 80,000 have died in insurgencies in Kashmir and the north eastern states.

Hizbullah has gained significant strength in the last couple of years," said Barak during an IDF Armored Corps drill in the North. "We are closely following a possible violation [of the resolution] caused by the transfer of advanced weapons systems from Syria to Hizbullah. The necessary preparations have been made, and regarding all the rest - I always prefer not to talk, rather to take action when the time comes."

Concerning the Georgia-Russia conflict, Barak warned against leaving friends during testing times. "We view Russia as a very important country both on a regional and global scale," he said. "we see Georgia as a country with which we have friendly relations, and Israel, particularly due to its experience, must ensure that it does not rush to leave its friends at a testing time. This is what we have expected from our friends and it is what our friends expect from us," he continued.

Barak's remarks came amid Russian protests over Israeli weapons sales to Georgia.

The Consumer Prices Index (CPI), the Government's preferred measure of inflation, was in line with the expectations of City economists, up from 3.8pc in June, and now stands at its highest level in more than a decade. The Bank's Monetary Policy Committee had access to the July's inflation figures when it decided to hold interest rates at 5pc last week, showing that while inflation remains a threat, MPC members are aware of the growing threat of recession.

Some economists, including Michael Saunders at Citigroup, have warned that there will be no let up for consumers, with CPI inflation now expected to hit 5pc before the end of the year. This makes it unlikely that the MPC will cut interest rates in the immediate future. "The MPC's updated forecast is likely to show both higher inflation and weaker growth than their previous forecast in May. We expect inflation to rise to about 5pc around year end, even though the economy is probably in recession now," said Mr Saunders.

Sarkozy was due to arrive in Moscow at 0910 GMT and meet President Dmitry Medvedev before flying to Georgia on a day of intense diplomacy aimed at ending violence in a region key to international oil transit. Pro-Western Georgia and Russia came into direct conflict over South Ossetia last week after Tbilisi launched an offensive to regain control over the pro-Moscow breakaway separatist region.

Hostilities appeared to broaden as Abkhazia, another Russia-backed rebel region, launched an offensive at dawn on Tuesday to force Georgian troops out of the disputed Kodori gorge, Abkhaz Foreign Minister Sergei Shamba said. "The operation to liberate Kodori gorge has started," he told Russia's Vesti channel. "Our troops are making advances. We are hoping for success."

GEORGIA HOSTS A KEY OIL PIPELINE SUPPLYING THE WEST and the fighting has unsettled oil markets. It has alarmed investors in Russia and has raised fears of a wider conflagration in the volatile region bordering Iran, Turkey and Russia.

Despite warnings by President George W. Bush for Russia to "reverse the course it appears to be on" and withdraw its troops to avert a "dramatic and brutal escalation of violence," U.S. MILITARY INTERVENTION IN THE SMALL FORMER SOVIET REPUBLIC IS NEARLY UNTHINKABLE, analysts said on Monday. There also is little Washington can do diplomatically to restrain the Russians, according to foreign policy experts.

"Let me say at this point that there are no good solutions. Either we have to try to remove them (the Russians) by force or accept a humiliating defeat," said Dimitri Simes, founding president of the Nixon Center in Washington. "It is not a happy situation, and we did not have to have this situation, and I think the (Bush) administration has considerable responsibility for that."

The Bush administration has pushed hard for Georgia to join NATO, against European misgivings and Russian fury at the idea. "Saakashvili was discouraged from attacking Russian troops in South Ossetia but he clearly never was told point blank 'If you do it, you are on your own,'" said Moscow-born Simes, who was an informal adviser to President Richard Nixon.