US faces 'greatest crisis since Great Depression', UK growth down to 1%

The US faces its greatest financial crisis since the Great Depression, claims the International Monetary Fund (IMF), as the chance of world recession grows.

The IMF's latest outlook states there is a 25 per cent chance of a global recession as the US economy looks downwards.

An IMF statement, obtained by Bloomberg, read: "The financial shock that originated in the US subprime mortgage market in August 2007 has spread quickly, and in unanticipated ways, to inflict extensive damage on markets and institutions at the core of the financial system.

"Global expansion is losing momentum in the face of what has become the largest financial crisis in the US since the Great Depression."

Meanwhile, forecasts from Capital Economics for the UK economy have slipped to one per cent in 2009.

Julian Jessop at Capital Economics said: "Recent news on the UK economy has been upbeat in comparison with the dreadful state of the US.

"But this is unlikely to last very long. Most major downturns in the US have been accompanied, or followed shortly after, by equally severe or even sharper slowdowns in the UK."

He added: "The very problems which have hit the US economy look likely to hit the UK just as hard.

"Although the UK does not have the same subprime problems, the wider housing market looks just as overvalued as that in the US, if not more, and households are just as overstretched."

Mr Jessop also predicted with the slow growth UK interest rates could fall to 3.5 per cent by 2009.

"It seems clear official interest rates need to come down considerably further. We now expect UK rates to fall to four per cent by the end of this year – implying one quarter point cut every two months – and further to 3.5 per cent in 2009."

Capital Economics predicts UK growth of 1.7 per cent in 2008 and one per cent in 2009, comparing with forecasts in the Budget of growth between 1.75 per cent and 2.25 per cent this year.