The £500 billion bailout of Britain's beleaguered banks will drive a coach and horses through the creaking public finances.

Economists tonight warned the £50 billion the Government plans to use to recapitalise UK banks will send borrowing to over £100 billion a year and possibly up to £150 billion. That is well above the £43 billion the Treasury hoped to borrow this year and £38 billion targeted for next year.

Those forecasts were already looking highly unlikely following the nationalisation of Northern Rock and Bradford & Bingley,
£2.7 billion in handouts related to the 10p tax debacle, and the looming recession which has cut tax receipts. The Treasury insisted the bailout should not count towards the borrowing figures because it is “temporary” and “offset by financial assets offering terms that reflect the risks we are taking on”.

But critics said it was the final nail in the coffin of the sustainable investment rule which dictates that borrowing should be only 40% of gross domestic product.

The revelation came as the International Monetary Fund slashed its growth forecasts for the UK economy as Britain reels from the crisis in the financial markets.

In its World Economic Outlook, the IMF predicted the economy will plunge into recession and shrink by 0.1% next year. It was the steepest reduction in growth forecasts for any advanced economy. The IMF had pencilled in growth of 1.6% six months ago.

“The global economy is entering a major downturn,” it said. “Many advanced economies are now close to recession, while emerging economies are also slowing rapidly.” Growth is slowing from China to Switzerland as policymakers struggle to contain the crisis.

The IMF forecast the US will grow by 0.1% next year, against its earlier prediction of 0.6%. It said the global economy will expand 3% next year. The April forecast was 3.7%.