Darling sees double-dip recession risk

Britain's Chancellor of the Exchequer, Alistair Darling, has warned that international complacency risks plunging the world into a double-dip recession.

In a stark message aimed at Germany and France, which want the G20 leading nations to discuss exit strategies from measures to stimulate their economies, Darling insisted that governments must carry on spending to ensure the global economy returns to sustainable growth next year.

"My view is that the biggest single risk to recovery is that people think the job is done," Darling said. "There is a real risk that either governments or people generally think 'We have done that, we are on the path to recovery'."

Darling is due to attend a meeting of G20 finance ministers in London this weekend, before national leaders debate a global recovery compact in Pittsburgh in three weeks.

Britain fears that Germany and France, who have returned to growth ahead of Britain, will push for a rapid decline in stimulus spending to appease public opinion and reassure financial markets that they are moving to balance their books.

Instead, Darling wants the G20 to take measures to combat unemployment similar to Britain's £5 billion ($12 billion) jobs package to ensure that the return to growth does not fizzle out.

"There are encouraging signs that the joint action we have taken in the last 10 months or so is having an effect," said Darling. "We are beginning to see the fruits of that action. But it is too early yet [to abandon it]. We must not get ahead of ourselves."

The Chancellor is sticking to his forecast of a V-shaped recession in Britain, with a return to growth around the end of the year: "I made my forecasts. I am not changing them."

His Budget prediction in April that the British economy would grow by between 1.25 and 1.5 per cent next year, which was widely criticised as too rosy, is expected to look better next week when the International Monetary Fund publishes a new forecast.

Referring to the prospect of a global W-shaped or double-dip recession, he said the world must deal with the risks, including rising oil prices and unemployment figures which would continue to grow next year.

UK officials accused French President Nicolas Sarkozy of grandstanding after France proposed a cap or tax on bank bonuses at a meeting of EU finance ministers yesterday and portrayed Britain as the roadblock to reform. The Treasury believes that proposal would be unworkable because bankers would merely bump up their basic pay.

Darling hopes to narrow the differences over bonuses this week so that G20 leaders can approve a detailed blueprint in Pittsburgh.

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