Britain will be a major casualty of the world downturn - with a major recession next year, says IMF

Daily Mail 8th October 2008

A major recession will take hold of Britain next year, the International Monetary Fund has warned.

Leaked figures showed that the world is heading for a 'major downturn' and that the UK will be one of the biggest casualties.

IMF staff have downgraded their economic forecasts for nations across the world and dramatically increased estimates of the total losses to be inflicted by the sub-prime mortgage crisis which started in the U.S.

A quiet Canary Wharf: Britain is to be a major casuulty of the downturn, according to the IMF

Among the advanced economies, Britain will suffer the most as it enters its first recession since the early 1990s, according to IMF forecasts.

The Washington-based fund said that UK gross domestic product will shrink by 0.1 per cent over the next year. Just six months ago, it forecast growth of 1.6 per cent in 2009.

The IMF's prediction cast doubt on Government and Bank of England forecasts showing the economy would remain in positive territory next year.

In a separate report, respected forecasters at the National Institute of Economic and Social Research today say that Britain has already slipped into a recession.

According to the IMF, other major countries will fare little better. The U.S. economy is predicted to expand by just 0.1 per cent in 2009, following growth of 1.6 per cent this year.

Global growth will slow to 3 per cent in 2009, down from a forecast in April of 3.7 per cent.

This year the global economy is expected to grow by 3.9 per cent.

 

'The global economy is entering a major downturn,' the IMF report said. 'Many advanced economies are now close to recession, while emerging economies are also slowing rapidly.'

The forecasts come as finance ministers and central bankers from the Group of Seven leading industrial nations prepare to meet this week in Washington. The G7 countries are the U.S., Japan, Germany, France, the UK, Canada and Italy.

There is huge pressure for the politicians to come up with joint measures to alleviate the banking maelstrom.

In another piece of analysis, the IMF boosted its estimates of sub-prime losses to $1.4trillion (£800billion).

It called for concerted, crossborder action by leading economies to control the financial turmoil.

The IMF said: 'Actions to stabilise the global financial system should be co-ordinated across countries and, in particular, across major financial centres.'

The warning is the latest in a series of dire predictions from the renowned organisation about the desperate state of the British economy.

It comes on top of its prediction last week that Britain was among the most vulnerable economies because of the over-stretched financial position of our banks.

The IMF analysed the financial position of 16 nations and said that UK banks have been the most aggressive in taking on debt to fund expansion.

It also claimed there was a 'full-blown crisis' in the world banking system and predicted more bank mergers.