IMF sees UK economy shrinking amid gloom over global economy

 

The International Monetary Fund today 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 – the deepest downward revision among the world's major nations. It has also cut its 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. It also admitted that spending cuts had had a bigger impact on growth than originally predicted.

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."

The international body 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" – the automatic tax rises and spending cuts which are due to kick in because Democrats and Republicans were unable to agree on deficit reduction measures in 2011. Some analysts warn the cuts could knock $500bn (£310bn) off the world's biggest economy next year.

Failure among eurozone leaders to agree on further integration and common supervision for the eurozone's banks could also hit confidence and send the single currency bloc's economy spinning into a deep recession, the report added.

The IMF estimates this "weak growth scenario" could wipe 1.75 per cent off the eurozone economy, with even steeper economic damage in peripheral southern states, which could shrink as much as 6 per cent.

The impact of the eurozone crisis is also blamed for slowing growth in China, where growth has been hit by tightening credit conditions to cool an overheated property market.

China's state-owned banks are meanwhile boycotting annual meetings of the IMF and World Bank in Tokyo beginning today due to a territorial dispute with Japan, which has inflamed tensions between Asia's two biggest economies. The dispute centres on eight small islands in the East China Sea occupied by Japan but claimed by China and Taiwan, which has led to widescale boycotts of Japanese goods in China.

Mei Xinyu, a researcher for the International Trade and Economic Cooperation Institution, said: "The banks' decision is further evidence that the unilateral actions by Japan is freezing bilateral relations and now starting to weigh on the world's economy."

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before