IMF delivers bleak forecast for two-year British growth

The International Monetary Fund has delivered a damning verdict on Britain's recovery chances as it slashed growth forecasts for this year and next.

The IMF's latest World Economic Outlook (WEO) painted a bleak picture of a deteriorating global economy in the past three months, with the UK and US the "notable" disappointments.

"Indicators of activity and unemployment show increasing and broad-based economic sluggishness in the first half of 2012, and no significant improvement in the third quarter," it warned.

The intervention also heaps pressure on David Cameron on the eve of a crucial Conservative conference speech, in which he will attempt to restore waning faith in the Coalition's economic strategy as the UK endures a double-dip recession.

The IMF's forecasters now predict the UK economy will shrink 0.4 per cent in 2012, after slicing growth estimates by 0.6 percentage points in the past three months. It has also cut estimates for UK growth in 2013 to 1.1 per cent, barely half the optimistic-looking 2 per cent currently pencilled in by the Office for Budget Responsibility.

The WEO warned: "Five years after the onset of the Great Recession, the recovery remains tepid and bumpy, and prospects remain very uncertain. Unemployment is unacceptably high in most advanced economies, and workers in emerging market and developing economies face a chronic struggle to find formal employment."

It warned there could be even worse news to come because its forecasts assume US politicians thrash out a compromise on the so-called "fiscal cliff" – automatic tax rises and spending cuts which kick in because Democrats and Republicans were unable to agree on deficit reduction measures in 2011.

China's state-owned banks are boycotting annual meetings of the IMF and World Bank in Tokyo due to a territorial dispute with Japan.