UK to suffer worst slump, warns IMF

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All major economies are expected to experience steep falls in output in 2009, but the drop for Britain is forecast to be substantially greater than the average, according to the International Monetary Fund's (IMF) World Economic Outlook.

In an update to its November report, the IMF said it had revised down its expectations for the contraction in the UK economy, from 1.3% to 2.8%. Advanced nations are expected to suffer an average 2% drop in output.

The IMF said global growth is expected to fall to 0.5% this year as the "scale and scope of the current financial crisis have taken the global economy into uncharted waters".

It called on governments to find new strategies to combat the economic turmoil and counter uncertainty.

"The main risk is that, unless stronger financial strains and uncertainties are 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.

Official figures last week confirmed that Britain fell into recession at the end of 2008. The UK economy contracted by 1.5% in the final three months of the year - worse than expected by analysts and sparking fears of a deep and prolonged recession.

Overall, UK gross domestic product (GDP) for 2008 as a whole fell to 0.7%, the poorest full-year output since 1992.

The UK recession has been all but inevitable in recent months as the financial crisis escalated in the wake of the credit crunch, which caused a crippling lending drought. This has hit the housing and construction markets hard, with all sectors across the economy now suffering.

The IMF said global recovery would not be possible until the financial sector began functioning again. The report said: "Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy."