LONDON - A second British cabinet minister announced she was resigning Wednesday, undermining Prime Minister Gordon Brown's authority and his future as leader of the increasingly out-of-favor Labor Party.

Communities Secretary Hazel Blears' decision to quit, on the eve of European and local elections in which Brown's party faces a rout, followed a similar move by interior minister Jacqui Smith and pre-empted a widely-expected cabinet reshuffle.

Blears and Smith are the highest profile casualties of the fallout from disclosures about outlandish, taxpayer-funded expenses claims made by members of parliament at a time when recession is forcing hundreds of thousands out of work.

Today I have told the prime minister that I am resigning from the government, Blears, who is responsible for local government affairs, said in a statement.

Saying she wanted to focus on her Manchester constituency in northern England, she said: Most of all I want to help the Labor party to reconnect with the British people.

Business minister Peter Mandelson said the uproar over expenses, which has damaged all of the main political parties, could hurt Britain's economic prospects.

If people believe our political institutions are being diminished or that our democratic system is being weakened they will start to draw economic and commercial conclusions from that if we are not careful, he said.


Brown's Labor party trails the opposition Conservatives by up to 20 points with a general election due by mid-2010 and has pinned any hope of bouncing back on a fast improvement in Britain's recession-hit economy.

Brown's reshuffle, which could come as early as Friday, had been seen as an opportunity to revive his flagging fortunes. But analysts said the resignations would probably dampen its impact.

They are uninterested in Gordon Brown and the appearance of Gordon Brown's government, they are doing this for their own sake, said Tony Travers, politics professor at London School of Economics.

Labor has faced the brunt of voter anger against many MPs who have milked the allowances system, claiming from taxpayers the cost of everything from duck houses to cleaning a moat.

Blears last month agreed to pay more than 13,000 pounds ($21,000) in tax on the sale of a property.

She was seen as taking a pot shot at Brown in a newspaper article she wrote last month when she said the government had shown a lamentable failure to get its message across.

Smith's reputation suffered in March when a leaked copy of her parliamentary expenses claims showed she had charged taxpayers for her husband's rental of two pornographic movies.

To lose this number of ministers and ex-cabinet ministers ... is quite a blow to the confidence of the government, said Andrew Russell, a politics lecturer at Manchester University.

But there are signs that Brown's efforts to revive the economy, which shrank at its sharpest rate since 1979 in the first three months of this year, are working.

A highly-regarded economic survey showed Britain's dominant services sector returned to growth last month, suggesting that the recession could end sooner expected.

Some limited growth could occur before the end of the year, said Howard Archer, an economist at Global Insight.

Asked whether finance minister Alistair Darling would keep his job in a reshuffle, Brown said only that Darling is leading the rest of the world in taking us out of the recession.

The Guardian newspaper, traditionally supportive of Labor, called for Brown to go.

The truth is that there is no vision from him, no plan, no argument for the future and no support, it said.

Harriet Harman, Labour's deputy leader, said she did not believe there would be a challenge to Brown and said the government had work to do before it calls a national election.

(writing by Adrian Croft and Matt Falloon; Additional reporting by Kate Kelland; Editing by Dominic Evans)