Britain will slide into a new recession during the autumn and winter and now faces its most severe economic downturn since the slump of the early Nineties, the International Monetary Fund said today.

The mounting toll from the credit crisis, plummeting house prices, and financial turmoil, will make the UK the worst hit of the world’s leading rich economies from a deepening global downturn, with the exception of Italy, the IMF predicts.

The warning today comes as the Bank of England cut interest rates by a half point in an emergency move as part of co-ordinated rate cuts on both sides of the Atlantic by it, the European Central Bank and the US Federal Reserve.

Britain’s prospects for this year and next are downgraded drastically in the IMF’s latest global forecasts.

The fund now expects the economy to grow by a meagre 1 per cent this year, compared with its April forecast of 1.8 per cent and Alistair Darling’s forecast for growth of 1.75 to 2.25 per cent.

Next year, the British economy is forecast to shrink by 0.1 per cent, with national income — GDP — suffering its first full-year decline since 1991, when it plunged by 1.4 per cent.

A muted recovery by late 2009 and into 2010 will be only very gradual, it adds.

The IMF’s bleak prediction that the British economy will contract in 2009 as the credit crunch and housing slump undermine growth is a stark reassessment of its April projection when it tipped growth next year of 1.9 per cent.

In his spring Budget, the Chancellor forecast 2009 growth of 2.25 to 2.75 per cent — a hope since dashed by the escalating crisis.

The IMF expects Britain’s unemployment to rise by almost 180,000 more by the end of this year, taking it close to topping 2 million based on the Government’s Labour Force Survey figures.

In even bleaker reading for Mr Darling and Gordon Brown, the fund also sounded a warning over the danger that the fallout from economic and financial upheavals could inflict a still more severe recession on Britain, as well as across the West’s other big economies.

The UK’s prospects are in peril from a barrage of risks, today’s report finds. These include the threat that an even sharper plunge in house prices will spell further financial stress on banks from bad loans, triggering tighter curbs on lending to consumers and homebuyers, and a vicious downward spiral that will choke off growth.

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