As protests rage IMF cuts forecast for UK economic growth next year

The International Monetary Fund slashed its forecast for UK economic growth yesterday, saying the events of 11 September had stifled any hopes of a global recovery next year. The decision to cut its prediction from 2.4 per cent to 1.8 per cent for 2002 comes just a week ahead of the Pre-Budget Report on 27 November, in which Gordon Brown, the Chancellor, is expected to follow suit and cut his own predictions for growth.

However, Britain is still expected to be the fastest-growing nation in the Group of Seven rich industrialised nations, including the US whose growth forecast was axed by 1.5 percentage points to 0.7 per cent. Horst Köhler, the IMF's managing director, said: "Major uncertainties and risks continue and there remains a concern that a measurably worse outcome could occur." But he described the UK as "relatively resilient, buoyed by domestic demand growth and the easing of monetary policy."

The Chancellor is expected to cut his forecast next week from a Budget prediction of 2.25 per cent to 2.75 per cent to a range of 1.75 per cent to 2.25 per cent, putting it below the Treasury's long-term rate of 2.5 per cent that it uses to set public spending.

The new forecasts were announced at the reconvened annual IMF meeting in Ottawa, Canada, postponed from 28 September because of the terrorist attacks. The meeting has been marred by the first violent clashes between anti-globalisation protestors and police since 11 September. About 3,000 people marched on the conference centre, where they encountered police guarding a security cordon. A handful of demonstrators, who wrecked a McDonald's on Friday, overturned barriers.

A police spokesman said there had been a "measured response" involving rubber bullets and pepper spray. Protestors were also doused with water from a fire hose even as temperatures fell close to zero. A total of 22 people were arrested.

At the meeting the IMF and the G-20 group of rich and poor nations launched a new initiative to choke off the supply of finance to terrorists.

Mr Brown, who chairs the powerful International Monetary and Financial Committee of the IMF, said all 183 members – which make up almost all the nations in the world – had been given less than three months to set up financial intelligence units to spot suspicious transactions.

He said he wanted an international "clearing house" for information to be set up to ensure all data were shared. According to one IMF source, this might be led by Britain's National Criminal Intelligence Service. "We are developing a more sophisticated form of asset tracking and forensic accounting," Mr Brown said. "Asset tracking, similar to the World War II code breakers, will be a very important way to the sources of supply for terrorism."

The Chancellor added the IMF would provide financial and technical assistance to poor countries who would struggle to put in these new systems, but he hinted that failure to comply could jeopardise their hopes of qualifying for future IMF loans. Mr Brown denied the UK was acting hypocritically in the light of reports that London had been used as a financial base for terrorism. "We have frozen $100bn of assets and we will do everything in our power," he said.

Amidmounting fears that a global recession could lead to renewed acts of terrorism, Mr Brown said the IMF had to stand ready with cash and debt relief "to tackle the increased challenges of poverty reduction." The IMF expects to pay out as much as $2bn to 39 low-income countries next year. However, in a rare sign of division in an otherwise united front, the US and UK disagreed on how poor countries should be assisted.

The Chancellor renewed his call on rich countries to meet the United Nations' target of donating 0.7 per cent of GDP – where the UK now only spends 0.31 per cent – while Clare Short, the Secretary of State for International Development, called for greater use of grants rather than loans. However, Paul O'Neill, the US Treasury Secretary, said: "Rather than wear our hearts on our sleeves, I want to see a remarkable level of improvement in productivity and living standards for people."