UK Will Be Hardest Hit By Global Recession: IMF
World economists predicted today that the UK would be hit harder than any other developed nation by the worst recession in more than 60 years.
The International Monetary Fund's (IMF) grim outlook showed the economy shrinking by 2.8 per cent this year, more than twice as bad as it previously thought and well above the 2 per cent average for advanced countries.
It came as another independent body warned £20 billion of tax rises or spending cuts would be needed to get the national finances back on track.
The Institute for Fiscal Studies (IFS) also predicted that, even then, swollen levels of public sector debt would not return to pre-crisis levels for more than 20 years.
Opposition parties greeted the latest assessments of the problems facing Britain as proof that Government policies were failing and Labour's "lie" that the UK was better protected than most.
"This is the day when the British people were confronted with the true cost of Gordon Brown's failures," shadow chancellor George Osborne said.
"It may be a bad day for him but sadly it is an even worse day for the country."
Liberal Democrat economics spokesman Vince Cable said: "This report exposes Gordon Brown's lie that Britain is well placed to deal with the recession.
"Huge levels of personal debt and an over-reliance on the financial sector has made this country particularly vulnerable."
But Downing Street insisted the Prime Minister remained "absolutely confident" that the Government was taking the right action to get Britain through the global recession.
Countries such as Japan and Italy were predicted to suffer deeper and longer recessions that the UK over the 2008 to 2010 period, his spokesman said.
He added: "Obviously those countries that are going to be hit particularly hard will be countries with large financial sectors. But the question is what do you do about that?
"The Prime Minister is absolutely confident... that the Government's plan for stability and recovery... is the right approach, the right plan, and it is in line with the approach of every other major economy."
In an update to its November report, the IMF said global growth was expected to fall to 0.5 per cent this year as the "scale and scope of the current financial crisis have taken the global economy into uncharted waters".
Unless the problems were "forcefully addressed, the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth," the report said.
It predicted the US would suffer a 1.6 per cent contraction in its economy in 2009, Germany 2.5 per cent and Japan 2.6 per cent and revised the UK prediction from 1.3 per cent to 2.8 per cent.
Earlier the IFS, in its annual Green Budget, said the fresh tax increases or spending cuts would be needed by the end of the next Parliament, in around 2015, to raise the money needed.
It added that, without additional intervention, public sector net debt would balloon to 60 per cent of national income and take decades to ease back.
The think tank gave a more gloomy outlook for the UK economy than that given by the Treasury in its Pre-Budget Report (PBR) last autumn, saying the recession would be longer and deeper than the Government first thought.
However, research by Morgan Stanley for the report suggests that taxpayers are likely to see only minimal losses from the Government's bank rescue efforts - and may even see a profit.
In another set of heated exchanges over the economy at Prime Minister's question time - shortly before the publication of the IMF figures - Tory leader David Cameron said the PM appeared "extraordinarily complacent".
"In the last week we've discovered that Britain is facing the deepest recession in a generation. We've had the worst manufacturing figures since 1975 and this morning the Institute for Fiscal Studies said the country's debt burden will take a whole generation to pay off," he said.
"How deeply will the economy have to contract before you finally admit there is indeed an economic bust?"
Mr Brown accused the Opposition of being alone in wanting to do "nothing" to resolve the crisis and said the IFS had concluded that his approach was working.
"Can I just quote from the IFS green budget... 'our central forecast is that the UK will avoid deep and prolonged recession thanks to the enormous monetary and substantial fiscal stimulus already agreed'," he said.
"If we had taken your advice and done nothing it would have been a deeper recession."
He went on: "I'm afraid the Conservatives are living in a dream world if they believe that: one, this is purely a British problem; and two, they believe that the answer to it is doing nothing."
Mr Osborne said the IMF figures showed a fresh approach was vital.
He said: "Gordon Brown cannot answer the simplest question of all: if Britain is well prepared as he claims, why are we facing the worst recession in the world?
"Let us hope these forecasts are wrong. But if they are not, Britain is set to endure the worst downturn of any major country and the worst year for the economy since 1948.
"Without a change of direction we will be living with Labour's debt crisis for a generation."
Read more from the Independent.