Britain faces the worst recession of any developed nation, says International Monetary Fund

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BRITAIN is facing the worst slump of any major economy, economists have said.

Huge debts, a housing bubble and the heavy reliance on the financial sector have left the UK economy more vulnerable than other developed nations, according to the International Monetary Fund (IMF).

As the worst recession since the Second World War takes its toll, the IMF predicts Britain's economy will shrink by 2.8% this year, more than twice as bad as previously thought and well above the 2% average for advanced countries.

The IMF prediction is significantly downgraded from its forecast just two months ago of a 1.3% contraction.

Howard Archer, of IHS Global Insight, said the IMF forecast was "depressingly realistic", adding that he expects the UK economy to shrink by 3.1% this year.

"It is embarrassing for the government in particular because obviously Gordon Brown said he was bringing the end to boom and bust and made a great play of the growth in the economy compared to the rest of Europe." he said.

"It raises the question whether the UK is in as structurally sound position that we thought it was."

Mr Archer said Britain has a particular vulnerabilities which makes it more likely to suffer in the recession.

"Obviously the global economy in general is being hard hit but there are some problems specific to the UK making the situation worse," he said.

"One is the financial sector is particularly important to the UK compared to other economies.

"Second is the housing bubble and another is consumers have really stretched themselves too far for too long in the UK so debt levels are very high."

He said the UK government has been unable to produce the sort of huge stimulus packages unveiled by other countries because of its large budget deficit.

"Really the scope for fiscal stimulus in the UK is limited because of the poor state of our finances," he said.