GEORGE Osborne’s determination to stick by his Plan A was facing mounting international pressure last night as the world’s leading economic body called on him to ease off on spending cutbacks to help the country’s recovery.
The International Monetary Fund (IMF) called for the spending tap to be opened by the Chancellor as it slashed the UK’s growth forecasts for this year to just 0.7 per cent and to 1.5 per cent for next year – the largest downward revision it has given to any major economy.
In its flagship publication, the half-yearly World Economic Outlook, it warned that recovery in the UK was “progressing slowly”.
With the government’s hoped-for private-sector revival failing to materialise, the IMF concluded that Mr Osborne should ease back on his plan to rein in public spending in order to boost demand.
The IMF’s chief economist Olivier Blanchard said growth globally was reliant on emerging markets, with the developed world failing to spark.
But among developed nations, he said, there was a gap opening between countries such as the United States – expected to grow by 3 per cent in 2014 – and the eurozone, where growth will struggle to hit 1 per cent next year.
The Treasury claimed last night that the Eurozone slowdown was to blame for the “headwinds” faced by the UK.
Ministers insist it is too risky to loosen the spending squeeze now, saying that if the UK were to borrow even more than planned, it would spook international markets, sending the price of Britain’s debt rocketing.
But the IMF’s call for a relaxation in fiscal policy was seized on by Labour, the SNP and economists who have warned that the Chancellor is sucking cash out of the economy too quickly.
They also pointed out that in previous years Mr Osborne had cited the IMF’s more supportive stance to back up his case. With growth still non-existent, however, the IMF is now urging a more proactive strategy.
Opponents seized on the report’s findings last night. Shadow chancellor Ed Balls said Mr Osborne had ignored previous calls by the IMF to reassess the country’s fiscal policy.
He added: “They are right to step up their warnings and insist that a change of economic policy is considered right now.”
SNP Treasury spokesperson Stewart Hosie MP added: “The IMF predictions makes for grim reading, but doesn’t surprise any of us.”
However, a spokesman for HM Treasury said: “The report from the IMF highlights the risks that continue to face economies around the world. Though the UK is forecast to have stronger growth than either France or Germany in 2013, difficulties in the euro area are still creating economic headwinds.”