Global economy enters ‘dangerous new phase’

The global economy has entered a dangerous new phase as fear of the unknown is high, the International Monetary Fund (IMF) has warned.

Speaking at a press briefing on the ‘World economic outlook’ yesterday, Oliver Blanchard, economic counsellor and director of research department at the IMF explained that tight bank lending and the legacy of the housing boom, together with increased financial pressure on households, is putting stronger brakes on the recovery than anticipated.

As a result, the forecast for world growth has been downgraded from 4.5 per cent in 2011 to 4 per cent, held up by forecasts of up to 6.4 per cent for some emerging market countries, while some advanced countries will see growth of just 1.6 per cent.

The gross domestic product growth (GDP) forecast for the UK in 2011 has also been downgraded from 1.7 per cent to 1.1 per cent.

Blanchard highlighted the importance of fiscal policy as the first leg in bolstering the global economy, stressing the need to get it right – too fast would kill growth, too slow would kill credibility.

The news comes as the Bank of England’s Monetary Policy Committee released notes from its September policy meeting, where further policy actions that could help to loosen monetary conditions were considered.

The meeting notes reveal that all MPC members voted for interest rates to remain at their record low, while boosting the flow of money to the UK economy by extending the £200 billion Quantitative Easing programme was discussed, with one member voting to extend it now.

Nick Clegg is due to speak at the Liberal Democrat Autumn Conference today and deny BBC reports that claim the Government is also planning to change course on spending cuts with a £5 billion rise in spending on infrastructure.