The IMF is to slash growth forecast for the UK, says a leaked report, in a move that will spark fresh doubt over the Government's economic forecasts.
New figures from the International Monetary Fund, due to be published next month, will see it cut its UK forecast to 1.8 per cent for this year from 2 per cent, and to 2.3 per cent for 2004, against earlier expectations of 2.5 per cent growth.
The revised numbers, obtained yesterday by Reuters, leave the Chancellor's forecasts looking increasingly exposed. Gordon Brown is relying on growth of 2 to 2.5 per cent this year, and 3 to 3.5 per cent in the subsequent two years.
The Bank of England publicly contradicted the Chancellor's Budget forecasts earlier this month, sparking concerns that Mr Brown will have to raise taxes to meet his ambitious spending plans.
The new IMF figures, disclosed in a draft of its World Economic Outlook due to be published ahead of its annual meeting with the World Bank in Dubai, highlight the fragile state of the world economy.The draft says the Fund now expects the global economy to grow by 3.1 per cent instead of the 3.2 per cent predicted in April.
The IMF is slashing its forecast for the Eurozone to 0.7 per cent this year from 1.1 per cent, while 2004 is likely to see growth of a still modest 1.9 per cent in the 12-nation area. The decline reflects the weakness of the French and German economies. France is expected to register anaemic growth of 0.8 per cent in 2003, while Germany will experience zero growth this year and expand by only 1.5 per cent in 2004. It warns that German prices might fall slightly over the period, raising the spectre of deflation.
The draft document also warns of the threat posed to the fragile global economic recovery by fast-mounting US trade and budget deficits. Gloomier even than the respected Congressional Budget Office in Washington, the IMF forecasts a structural budget deficit of more than 5 per cent of gross domestic product - or some $550bn (£350bn) - in 2003, and little decline thereafter.
The plus side of the tax and monetary stimulus by the Bush administration is expected growth of 2.2 per cent this year and 3.6 per cent next, suggesting that the US will remain the "locomotive" of the developed industrial economy.