Darling wrong on slump, warns Europe

The European Commission has been forced to dramatically revise its growth estimates for 2009, suggesting EU economies will shrink by 4 per cent in 2009, twice that originally expected.

The report throws serious doubts on Chancellor Alistair Darling's optimism that the UK economy will be recovering strongly by 2010.

Instead of the 1.25 per cent growth Mr Darling forecast in the Budget, the EU expects a marginal 0.1 per cent growth.

According to the report, Mr Darling's prediction for 2009 of a 3.5 per cent contraction is reasonably accurate: the commission expects 3.8 per cent.

The EC called on governments to improve confidence in banks by moving swiftly to clean up their balance sheets.

"The European economy is in the midst of its deepest and most widespread recession in the post-war era," Joaquin Almunia, the economic and monetary affairs commissioner, said.

"The outlook is still gloomy, but for the first time since mid-2007, some positive signals have appeared in the last week."

The biggest debate in Britain over the report was on the relatively slow recovery for the UK in 2010 compared with the rest of the EU, and whether Mr Darling would be forced to borrow even more if, as is predicted, his forecasts were wide of the mark.

Shadow chief secretary to the Treasury Philip Hammond said: "Yet another impartial commentator is discounting Alistair Darling's projections. Until our government recognises the size of the hole we're in, and finds the courage to stop digging, we will not get Britain back on the path to sustainable growth."

SNP Treasury spokesman Stewart Hosie said that the UK government needed urgently to review expensive projects such as ID cards and the renewal of the Trident nuclear deterrent.

"These latest EU figures further expose the overly ambitious predictions of Gordon Brown and Alistair Darling," he said. "The Treasury has had to revise its predictions once, and it looks like they will have to do so again.

"No independent analysis has supported Labour's view and this cloud-cuckoo-land approach to public finance is unsustainable."

Treasury sources suggested that the commission was not the most reliable forecaster and insisted that the UK government was sticking by its predictions.

A spokesman said: "The unexpected depth of the global recession towards the end of 2008 and start of this year has led to significant downward growth revisions for all the major economies by forecasters including the IMF and EC.

"As a result of the decisive fiscal, monetary and international policy action taken, the government expects growth to return towards the end of the year."