George Osborne must be ready to change tack, says IMF

Published on 20/07/2012 01:57

Chancellor George Osborne should be ready to slow the pace of his tough austerity measures and shake up the annual Budget if the economy fails to come to life, the International Monetary Fund warned yesterday.

The IMF, led by former French finance minister Christine Lagarde, said the government should ease its fiscal consolidation, which includes spending cuts and tax reforms, if the recovery continues to stall.

The organisation said Mr Osborne should consider introducing increased infrastructure spending in his next Budget to boost growth, which could be funded by further tax reforms.

And in a further blow to Britain’s hopes for recovery, the IMF said the government was now expected to hit its goal of slashing the ratio of debt to gross 
domestic product a year later than hoped.

The organisation significantly lowered its UK growth forecast for 2012 to 0.2 per cent from 0.8 per cent just three months ago, reflecting the UK’s slide into double-dip recession.

The IMF judgment will come as a blow to the Chancellor, 
who has vowed to press ahead with his plans to lower the country’s deficit over the next five years in spite of weak growth.

Shadow chancellor Ed Balls said: “This is a very serious warning to the Chancellor that urgent action to boost jobs and growth is needed.”

The IMF tackled the controversial topic of Libor – the interbank lending rate at the heart of a fixing scandal that has rocked the banking industry, in particular Barclays.

The organisation said it was “appropriate” that reforms to ensure the integrity of interest rates are considered. The findings of the investigation into Barclays by UK and US regulators, which ultimately fined the bank £290 million for rigging the Libor, were “disturbing and may have spillovers”, the IMF said.