Chancellor's forecast 'optimistic'

In his Pre-Budget Report in November, Alistair Darling said output in Britain would continue to fall for the first two quarters of 2009. But he said after that he expected it to start to recover.

However, Barry Potter, a director of the International Monetary Fund, cast doubt on that. Speaking about the Chancellor's forecast on BBC Radio Scotland's The Business programme, Mr Potter said: "That would be towards the more optimistic end of the projections."

He added: "It's difficult to know exactly how long this will take, and it will depend on how effective the various policy measures that the UK has already taken will turn out to be."

And Mr Potter said the economic slowdown would be "a particularly sharp problem for the UK Government to handle in the next year or so".

But, speaking on the same programme, Mr Darling said the prediction that the economy would start to recover in the third quarter was based on the "best evidence" the Treasury had. And he said: "If you look at what I forecast at the end of November, it was broadly in line with what the Bank of England was also forecasting."

Mr Darling accepted that 2009 would be "difficult", adding: "I'm pretty clear that we will move into recession."

But he said: "The question is what do you then do about it? That's why it's so important that not just ourselves but governments across the world act together."

He continued: "This year will be difficult but I am confident that, if we and other countries act together, and if we can deal with the problems in relation with the banks, there is every reason to believe we can be confident about coming through this.

"The thing that will influence what happens this year is firstly what do countries acting together do to boost their economies. The other key thing so far as the UK is concerned is what can we do to ensure banks start lending not just to each other but to businesses and people."