The International Monetary Fund has downgraded its forecast for UK growth next year by more than any other developed nation, as it warned that the world economy is weakening.
The Washington based organisation predicted on Monday that growth in the UK will be just 1.4% in 2013 compared with a previous forecast of 2%. This year the situation will be even worse and a previous forecast for 0.8% growth this year has all but evaporated.
The IMF said in its latest World Economic Outlook that GDP across the UK – which is currently in recession – will increase by just 0.2% in 2012, beating Italy and Spain, but behind France and Germany.
Vince Cable the Liberal Democrat business secretary, called on Friday for an urgent New Deal-style stimulus package involving funded tax cuts and a major capital investment programme including tolls for a roadbuilding programme.
Insisting his proposals amounted to a radical Keynesian package – using language and ideology not shared with the chancellor, George Osborne – he said that in the face of a stagnating economy ministers had to "pull all the levers available to government. We are not powerless."
In an interview on the eve of the Liberal Democrats' party conference in Birmingham, Cable urged the Bank of England to start another round of quantitative easing "quite soon". "I am going as far as I can legitimately go in saying this is a problem."
It was perfectly sensible economics, he said, to allow spending to rise in the wake of higher unemployment and lower revenues. He added: "The danger of not acting is that you get a vicious downward spiral." Cable also tried to change the terms of the public debate on the economy, saying absolute distinctions between plan A and a plan B were "proving very unhelpful". He suggested plan A plus, but said it was better to move on to new language