IMF sees shoots of recovery for UK economy

Having endured its sharpest slump in 75 years, the British economy should return to growth in 2010, according to the latest forecasts from the International Monetary Fund.

But leaders of the world's richest nations warned yesterday there were still "significant risks" to the global economy despite recent signs of recovery.

The IMF had previously thought that the UK economy would decline by 0.4 per cent; it now foresees a rise of 0.2 per cent next year. Although minimal, and below the Chancellor's Budget prediction of 1.25 per cent, such a figure will corroborate Alistair Darling's claim in April that "I expect to see growth resume towards the end of the year".

Much of the improvement in Britain's prospects derives from a general brightening of the world picture, and a more up-beat assessment for the US, which accounts for roughly a fifth of global GDP. The US is expected to see 0.8 per cent growth over 2010, a remarkable bounce-back. That, in turn, is driven by the huge stimulus packages from governments and central banks.

Gordon Brown has issued a "wake-up call" that governments should not yet ease up in the battle against the recession and the G8 leaders, meeting in L'Aquila in Italy, echoed that yesterday.

Mr Brown is worried that volatile oil prices could strangle a recovery and called for a "new dialogue" with oil producers. The G8 meeting is believed to have discussed plans to stabilise the price at between $70 and $80 a barrel.

The Prime Minister said last night that G8 countries were united over the need for "vigilance" and in not unwinding their measures to boost growth until "recovery is assured".

However, the IMF's report carried a bleak warning. It said: "The recession is not over and the recovery is likely to be sluggish. In the advanced economies, rising unemployment and a loss of confidence in the stability of the financial sector could potentially trigger a deflationary episode. Moreover, rising questions about public debt sustainability in some countries could add to... negative effects on the recovery of housing markets."