Nouriel Roubini, one of the few experts to predict the 2007 crash, admits fears after Bank of England governor Mervyn King issues stark message about Britain's economic health

Britain and the weaker nations of the eurozone remain vulnerable to the risk of a double-dip recession, even though the rest of the world economy is recovering from the global economic crisis, leading US economist Nouriel Roubini warned today.

Speaking at the World Economic Forum in Davos, in the wake of yesterday's news of a surprise fall in UK growth, Roubini highlighted concerns about possible further weakness in the economy in 2011. The warning came just hours after Mervyn King, the governor of the Bank of England, said UK households were suffering the most prolonged fall in living standards since the 1920s.

Roubini said today that he saw the global economy as a "glass half-full and a glass half-empty", with signs of recovery in both the developed and developing worlds, and businesses in good financial health. But he also said he was concerned about the "anaemic" pace of growth in advanced economies, the risk of further sovereign debt crises, rising commodity markets, structural problems in the United States and the re-emergence of global economic imbalances.

Roubini, a professor at the Stern School of Business at New York University, made his reputation by being one of the few economists to predict the crash of 2007 and has been dubbed Dr Doom for his gloomy predictions throughout the crisis.

Expressing particular concern about the eurozone and its possible negative impact on the wider global economy, Roubini – who also chairs Roubini Global Economics – praised the more aggressive policy response over the past two months. He added that the "tail risks of an outright double-dip recession and outright deflation are lower than they were last year, even if the data for the UK and the peripheral eurozone economies seems to suggest that there are risks of a double dip".

However, Roubini said four big risks remained: the threat that the crisis would spread to Spain, which was "too big to fail and too big to save", the fact that Greece's debts made it effectively insolvent, the burden of bank debt that had been loaded onto state coffers in countries such as Ireland and the inability of the crisis countries to grow their way out of trouble.

Roubini said the lack of any "light at the tunnel" led to a risk of a social backlash in the eurozone.

Martin Sorrell, the chief executive of advertising group WPP, said his concern was that the US government was not taking steps to reduce its budget deficit. Sorrell added that George Osborne should be congratulated for at least trying to get to grips with the problems in the UK.

Return to the 1920s?

The mood in Davos was notably more upbeat than a year ago. A survey of business leaders, published this morning, showed there is much more confidence about the state of the global economy.

This optimism is not mirrored in the UK, after Mervyn King issued a stark warning about the impact of the financial crisis and its aftermath on the UK last night.

King defended the Bank of England's performance on controlling inflation, despite the cost of living rising much faster than official targets through 2010. He blamed higher energy prices, import costs and the VAT rise for fuelling inflation.

King warned that wages have failed to keep pace with the cost of living, falling during 2010 despite the UK economy growing for most of the year.

"Given the rise in VAT and other price rises this year, real wages are likely to fall again. As a result, in 2011 real wages are likely to be no higher than they were in 2005. One has to go back to the 1920s to find a time when real wages fell over a period of six years," King told an audience at Newcastle's Civic Centre.

King insisted that the Bank of England's monetary policy committee was right not to raise interest rates from their current record lows, saying this would have harmed the recovery and pushed unemployment higher.

However, minutes published this morning showed growing concern on the MPC about inflation. Two members of the committee voted for a rate rise this month, as the balance of power between hawks and doves on the MPC shifted.

King's speech also included a warning that inflation might hit 5% this year.

Yesterday, government ministers were shaken by the unexpected drop in GDP for the final three months of 2010. But George Osborne refused to change the pace of the government's austerity cutbacks, blaming the contraction on December's snow.

"There is no question of changing a fiscal plan that has established international credibility on the back of one very cold month. That would plunge Britain back into a financial crisis. We will not be blown off course by bad weather," Osborne said.

Union leaders attacked the coalition government this morning, claiming it was pushing on with an economic "gamble" that would hurt millions of people.

Paul Kenny, general secretary of the GMB union, warned that many ordinary workers were angry about the government's approach to the economy.

"We are seeing, frankly, from areas of our membership, areas that have traditionally been very, very moderate and quiet, we are seeing calls for industrial action ballots," said Kenny this morning.

Bob Crow, leader of the Rail, Maritime and Transport Workers' Union, said there would be co-ordinated industrial action to protect pay and living standards. Crow said that King's prediction that inflation could reach 5% would be factored into pay negotiations.