Darling flies to America

Alistair Darling has flown to America to meet with finance chiefs to help broker a international move on tackling the global credit crisis.

The chancellor of the exchequer will first meet up with finance ministers from the G7 countries – after a similar meeting of European ministers at the weekend.

At the head of the agenda for the meeting of the G7 finance ministers will be organising a unified effort to take on global banking crisis, following a combined interest rate cut yesterday from seven central banks.

On Saturday, Mr Darling will move on to meetings at the International Monetary Fund.

Yesterday the IMF predicted a major global slowdown.

Across the advanced economies the IMF sees growth of 1.5 per cent in 2008 and 0.5 per cent in 2009.

For the UK growth of one per cent is expected for 2008 and a contraction of 0.1 per cent in 2009.

"It has become obvious in the past few weeks the world economy is facing a major downturn," said Olivier Blanchard, economic counselor and director of research at the IMF.

He went on to predict high borrowing costs around the world.

"Under any realistic plan, the reestablishment of trust, or more formally the decline in counterparty risk between financial institutions, will take time," Mr Blanchard said.

"During that time, credit to the ultimate borrowers, namely you and me, households, firms, will be limited and expensive. Depressed confidence, which we have seen, and low credit growth will act as a drag on advanced economies."

At the IMF meeting Mr Darling and his international counterparts will focus on solutions to the crisis, which Mr Blanchard claimed were necessary to prevent a further decline.

"Could things turn out worse than our baseline projections? The answer is, unfortunately, yes. If countries do not implement coherent systemic responses to the financial crisis soon, the hit to output could be much larger than under our baseline. And even if they do implement such responses, there is the risk of dangerous negative feedback loops between declining activity and strains in the financial sector."

He added more action was needed than the combined 0.5 per cent interest rate cuts.