More bad news for Osborne as IMF prepares to cut UK growth

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The Treasury and the Bank of England are braced for more bad economic news this week, with the latest readings on inflation and unemployment due. There is also likely to be a growth downgrade from the IMF, which meets in Washington for its spring conference with both the Chancellor, George Osborne, and the governor of the Bank, Mervyn King, attending.

City economists are predicting a weakening in growth to as low as 0.2 per cent in the first quarter of 2011, when the figures are published at the end of the month. This would mean the economy has failed to make up for the loss of output seen over the winter months, and that economic activity was lower than last autumn, calling into question the Chancellor's economic strategy.

Youth unemployment in particular is likely to prove a theme, amid claims that the Government is creating another "lost generation" of jobless youths who will find it progressively more difficult to enter the labour market. As in the 1980s, the fear is that mass youth unemployment will see them consigned to a lifetime of drifting in and out of low-paid casual jobs. The respected National Institute of Economic and Social Research has warned of a "scar" on the labour force that will take many years to heal.

Last month's data showed that unemployment among 16-to-24-year-olds stood at 974,000 – and there is a strong chance that the total will breach the politically significant 1 million barrier on Wednesday. The new financial year will also soon bring reports of redundancy notices being posted by local councils and other public bodies feeling an unprecedented peacetime financial squeeze. The Local Government Association has talked about 140,000 job losses in councils alone this year.

Yet even as the economy slows and unemployment rises – with some analysts saying it will approach 3 million later this year – inflation remains stubbornly high. In February, prices rose by a steeper-than-expected annual rate of 4.4 per cent, and a number of Bank of England policymakers, including Mr King, have conceded that it may reach 5 per cent in the coming months.

Day-to-day inflation – necessities such as food, clothing, energy and fuel – is running about 1 percentage point higher than that, according to research by PricewaterhouseCoopers, but pay rises are typically running at 3 to 4 per cent, or pay cuts in real terms.

By the end of the year, mortgage bills for 10 million households are set to head higher. It will lead to a second successive year of falling living standards, the latest instalment in what Mr King has characterised as the longest squeeze in consumption since the 1920s.

The IMF, meanwhile, seems likely to follow the OECD and the Office for Budget Responsibility in downgrading its growth forecasts for the UK when it unveils its latest World Economic Outlook this week.

The crisis in the eurozone is also far from abating. Although Portugal has applied for assistance from the European Union, the details are uncertain and there is a prospect of further crises involving other countries in the coming months. Greece and Ireland are both, for different reasons, thought to be looking for further assistance.

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