Darling rejects calls for spending spree to avert global recession

The Chancellor, Alistair Darling, risked a row with his opposite number from Washington yesterday by rejecting calls from the United States for a co-ordinated global boost to demand for the world economy.

Speaking ahead of the meeting of G7 finance ministers today, Mr Darling made clear that while the Treasury has been "broadly supportive" of the US position, there were clear differences between the two sides. "The conditions in different countries are not the same," he said. "The actions taken in different countries will be different depending on their particular circumstances."

The US Treasury's under-secretary for international affairs, David McCormick, recently remarked that it was "especially important" that other advanced economies "take prudent steps to strengthen their economies' demand components", a signal that they should try to follow the Bush administration's $145bn (£75bn) package aimed at preventing the American economy from sliding into recession.

However, the Treasury stressed that the UK's borrowing will rise in any case as a result of lower estimates for growth, and that the Government will allow the "automatic stabilisers" that normally help the public finances support the economy during a downturn to operate.

In fact, Mr Darling has little "headroom" for a spending splurge. As it is, the IFS expects the UK's fiscal deficit to exceed £40bn this year and for public sector net debt to hit 40 per cent of the national income next year, the Government limit.

Mr Darling is supported by Germany and Japan, the latter citing the failure of huge public spending to revive its "post-bubble" economy in the 1990s. The Japanese Finance Minister, Fukushiro Nukaga, said: "The United States, Europe and Japan face different economic fundamentals. How do the individual countries and regions bring their economies back to what it was before?"

On financial markets, there seems more scope for accord at today's summit. The G7 Communique, to be released today, will declare that the world economy is facing a "more challenging and uncertain environment". It will say: "We will remain committed to taking necessary action, individually and collectively, in order to secure stability and growth in our economies".