Eurozone crisis could hamper UK economic recovery, IMF warns

A WORSENING eurozone crisis would deliver a “substantial contractionary shock” to the UK economy, setting back progress made towards recovery, the International Monetary Fund has warned.

In a report on the UK, the IMF identified uncertainty over the future of the euro as the main problem in relation to recovery and warned: “Risks are large and tilted clearly to the downside.”

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The report recognised “substantial progress” towards getting Britain’s economy back on track thanks to the coalition Government’s deficit-reduction programme, but noted that the economy remains “flat” and warned that the weak recovery may be “more protracted than previously anticipated”.

Although recovery is expected to pick up from the second half of 2012, unemployment is “much too high” and much of the UK’s productive capacity could remain “idle for an extended period”, said the IMF.

The fund called for another round of “quantitative easing” - where the Bank of England prints money - or a reduction in the base interest rate from its record low of 0.5 per cent to make borrowing cheaper.