BRITAIN will be the only economy in the G7 that will not have pulled out of recession by the end of this year, the Organisation for Economic Cooperation and Development (OECD) has forecast.

The gloomy prediction from the Paris-based thinktank will embarrass the chancellor [UK finance minister], Alistair Darling, as he prepares to meet his fellow G20 finance ministers in London. He and Gordon Brown have been keen to paint the UK as the leader of the fightback against global recession, but the OECD believes that while the world economy is starting to emerge from the deepest slump since the Second World War, the UK is lagging behind.

The crisis-hit UK economy is still contracting, and will record zero growth in the final quarter of this year, according to the OECD, while the eurozone and the US will score two quarters of growth.

The Conservatives seized on the forecasts, which contradict the Treasury's prediction in the spring budget that the economy will bounce back by the autumn.

Philip Hammond, shadow chief secretary to the Treasury, said “Far from being well placed to weather the storm, as Gordon Brown claimed, these figures show yet again that Britain is worse placed than our neighbours by a recession that we were ill-prepared to face, thanks to his economic and fiscal mismanagement.

“We will be the only major economy without any growth this year, and the only one for which prospects have got worse not better.”

The OECD said that upbeat news from large emerging markets such as China, where demand is expanding rapidly, together with healthier credit markets, meant recovery in the global economy as a whole could come earlier than it had previously thought.

But as finance ministers from the G20 countries gather to discuss how to cement the recovery over the coming months, the OECD warned that policymakers must avoid stifling growth by withdrawing anti-recession measures too soon.

“Numerous headwinds imply that the pace of the recovery is likely to be modest for some time to come,” the OECD said. “Taking the first steps towards normalisation of policy interest rates from their current exceptionally low levels should in most cases and on current prospects wait until well into 2010, and in some cases even beyond.”

The OECD expects the British economy to contract by as much as 4.7 per cent in 2009 — a far more severe contraction than the three to 3.5 per cent predicted by the chancellor in his budget — though Germany, Japan and Italy will all fare even worse, partly because they contracted so rapidly in the early months of the year.

The OECD also urged the world's developed countries to draw up clear proposals for putting their finances back in order, once the unprecedented stimulus packages of the past 12 months are no longer necessary.

“Preparing credible exit strategies and fiscal consolidation plans now, even if actual implementation will only commence later, is desirable,” the organisation said.

Jean-Claude Trichet, president of the European Central Bank (ECB), rubbished calls for fiscal stimulus plans to be reined in, saying “[The] time is not come yet for an exit strategy.”

— The Guardian, London