IMF: Recession will be worse than predicted

THE recession in Britain will be longer and deeper than previously thought, the International Monetary Fund warned tonight.

It said the economy will shrink by 3.8 per cent this year and 0.2 per cent in 2010. The forecast was far worse than the prediction less than two months ago of a 2.8 per cent contraction this year followed by growth of 0.2 per cent.

The grim outlook came just a day before official figures were expected to show that in January the number of unemployed rose above two million for the first time under New Labour.

Some economists predict unemployment will hit three million this year and 3.3 million before the jobs market starts to recover.

And in a blow to Gordon Brown ahead of next month's meeting of G20 leaders in London, the IMF tonight said only Japan will suffer a worse downturn this year, with a five per cent dive, sharply down from the last forecast of a 2.6 per cent contraction. The IMF now expects the global economy to shrink by 0.6 per cent this year, compared with its January forecast of 0.5 growth.

The US economy is predicted to shrink 2.6 per cent this year, compared with a January forecast of a 1.6 per cent contraction. The Eurozone is expected to contract 3.2 per cent, down from January's forecast of a 2 per cent decline.

IMF adviser Teresa Ter-Minassian said at a conference in Lisbon: "This is a true global crisis, impacting all parts of the world and countries at different levels of development."

The IMF warning came on the day Financial Services Authority figures showed that the number of mortgage accounts in arrears shot up by 31 per cent last year.

Howard Archer, chief UK economist at Global Insight, said the housing market was in for another tough year. "We suspect that any pick-up in housing market activity will be limited for some considerable time to come and that further significant house price drops are in the offing," he said.