Markets hit as US faces shutdown in budget deal battle Around 800,000 public sector staff could be forced to go on unpaid leave Millions more could be forced to work for free, barring a last minute deal Could cut US economic growth by 1.4% and cost country £1.25billion Experts have warned of 'the nightmare of the recession all over again' By Tom Leonard In New York Political paralysis in Washington sent stock markets falling around the world yesterday as the US braced itself for its first government shutdown in nearly 20 years. Barring an unlikely last-minute deal between Democrats and Republicans over the federal government budget, around 800,000 workers will go on temporary unpaid leave from today and millions more possibly forced to work for free. The last such shutdowns, over the winter of 1995 to 1996, lasted 28 days. Economists estimate a similar disruption now could cut US economic growth by 1.4 percent, costing the country as much as £1.25bn. Pledge: Barack Obama has vowed that the Republicans will not water down his healthcare reforms But, far more worryingly, an impasse that lasts more than a week or two could scupper chances of Congress agreeing to extend government borrowing later this month. The US reaches its current borrowing limit in little more than two weeks. If the government is forced to default on its debt for the first time ever, the shockwaves would be felt around the world as US government bonds anchor the international financial system. A long government shutdown followed by a debt default would be 'the nightmare of the recession all over again', said Mark Zandi, chief economist of Wall Street analysts Moody's Analytics. Jittery markets saw little to reassure them in fractious Washington yesterday where politicians prefered to bicker over who was to blame rather than negotiate a way to avert disaster. The bitterly divided factions in Congress had until midnight, when the government's fiscal year ended, to reach agreement on a new budget bill. Standing ground: House Speaker John Boehner of Ohio walks to a House Republican Conference meeting to discuss the ongoing budget fight. He has said the party will not back down Conference: President Obama speaks to the media in the briefing room of the White House on the looming government shutdown in Washington Republican hardliners insisted it should include amendments to water down and delay Barack Obama's controversial healthcare reforms, which begin to be implemented today. But the White House and the Democratic-controlled Senate refused to budge, accusing Republicans of allowing a small minority of Tea Party hardliners to hold the country to ransom. Both houses of Congress have to approve the budget. As it had warned, the Senate voted on Monday to strip out the Republicans" health care amendments and sent back the government funding bill to the House with just hours before the deadline. Earlier in the day, Republican House Speaker John Boehner insisted they would not back down either. Crisis talks: President Obama speaks to members of his Cabinet. If a budget is not agreed the government will shutdown for the first time since 1995-6 He pledged to keep fighting the implementation of so-called Obamacare, which aims to provide healthcare coverage to millions of uninsured Americans. Fellow Republicans blamed Mr Obama for the impasse, complaining he had ignored their pleas for talks and not contacted Mr Boehner in more than a week. Mr Obama has vowed that the Republicans will not water down his healthcare reforms and seems confident in polls that suggest his opponents will get most of the blame for a shutdown. According to a CNN poll, 69 percent said the Republicans were behaving like 'spoilt children' - compared to 58 percent who thought the same of the Democrats. Conflict: U.S. Senator Chuck Schumer and Senate Majority Leader Harry Reid leave a news conference while the deadlock over the budget continues Mr Obama called on House Republicans to 'set aside the short-term politics', saying: 'We certainly don't allow domestic policy differences, on issues that are unrelated to the budget, to endanger not only our economy but the world economy.' Under a shutdown, the State Department would continue processing foreign applications for visas, and embassies and consulates overseas would continue to provide services to American citizens. White House confidence was punctured yesterday by a 'fact check' by the Associated Press of the president's health reform claims. It indicated that he was being 'slippery' about the real costs of getting insurance under his new system. The AP report tore apart his claim that most of the uninsured population would be able to get health insurance for less than the cost of their monthly mobile phone bill.