UK growth forecast slashed to just 1.2%
The International Monetary Fund has slashed growth forecasts for the UK despite predicting a faster than expected recovery for the global economy.
Its latest quarterly World Economic Outlook lowered UK growth estimates to 1.2% for this year and 2.1% in 2011, down from the 1.3% and 2.5% it predicted in April.
The IMF report prompted attacks from Shadow Chancellor Alistair Darling on the savage clampdown unveiled in June's emergency Budget, which aims to claw back an annual £113bn in spending cuts and tax hikes by 2014/15 to tackle the deficit.
"This downgrade shows the huge risk the new Government is taking by deliberately choosing to take so much money out of the economy," Mr Darling warned.
The IMF's latest report puts UK growth next year below the 2.3% predicted by the Office for Budget Responsibility.
But the body also warns of the danger of cutting too fast. The IMF said: "Growth prospects in advanced economies could suffer if an overly severe or poorly planned fiscal consolidation stifles still-weak domestic demand," it added.
The Washington-based organisation raised its 2010 world growth forecast to 4.5% from 4.1% in April, helped by improved prospects for the US and fast-growing economies such as India and China.
Asian economies have recovered strongly this year, driven by buoyant exports and stronger domestic demand, the IMF said.
The agency raised its 2010 growth forecast for China to 10.5% from 10% in April, for Japan to 2.4% from 1.9% and for India to 9.4% from 8.8%. The estimate of the region's growth rose to 7.5% from 7%.
But it warned that any slackening in Europe's recovery "would affect Asia through both trade and financial channels".
Risks have "risen sharply" due to Europe's financial turbulence, with leaders needing to act quickly to resolve debt problems and restore confidence in their banks, it said.
Meanwhile, weak data from major economies in recent weeks have diminished confidence in a strong rebound from last year's recession.