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Osborne told 'lacklustre' economy means austerity should be curbed



George Osborne was last night told he was 'playing with fire' by persevering with strict austerity policies as the economic outlook in Britain was downgraded.

The International Monetary Fund slashed its UK growth forecasts to a mere 0.7 per cent in 2013 and 1.5 per cent in 2014 – a 0.3 percentage point cut for each year.

The highly respected global watchdog also said the Chancellor should consider watering down his plans to cut the deficit as its doubts hardened over his tax hikes and spending cuts.

Olivier Blanchard, chief economist at the IMF, said Mr Osborne is 'playing with fire' by pressing ahead with austerity before the recovery gathers pace.


He added: 'In the face of weak demand it is really time to reconsider an adjustment to the fiscal consolidation plans.'

Despite the criticism, the IMF still expects the UK to be the fastest-growing major economy in Europe in 2013 and 2014 – outstripping Germany, France, Italy and Spain.

In its latest World Economic Outlook, published yesterday, the IMF said the road to recovery 'will remain bumpy' and warned that the major risks 'relate to developments in the euro area', including Cyprus, Italy and Greece.


It added that the UK's recovery is 'progressing slowly' but delivered a long list of problems holding the country back – including subdued exports, a lack of bank lending and 'economic uncertainty'.


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Shadow Chancellor Ed Balls said: 'These downgraded growth forecasts are yet another damaging blow to a downgraded Chancellor whose economic policies have totally failed.

'In the face of very weak private demand it is time to consider adjustment to the original fiscal plan'

IMF chief economist Oliver Blanchard


'Urgent action is needed to kick-start our flatlining economy.'


Prime Minister David Cameron's spokesman said: 'As the Chancellor has said, we are slowly but surely fixing this country's economic problems.'


The IMF described the private sector-led recovery as ‘lacklustre’. Its gloomy prediction is in stark contrast to growing confidence among business leaders about economic prospects for the future.



The IMF predicts Britain will see similar levels of growth to Germany, Austria and Finland in 2013

Mr Osborne has refused to be diverted from his economic plan, insisting ‘we will hold to the right track’.

But during last month’s Budget he was forced to admit he will miss his target to get grip on the nation’s mounting debt as efforts to tackle Britain’s deficit take years longer than expected.

Ministers had hoped the spring would bring more positive economic news with the first signs of sustained – if low-growth.

The IMF report said: ‘In the United Kingdom, the recovery is progressing slowly, notably in the context of weak external demand and ongoing fiscal consolidation.’

It warned that rebalancing from the public to private sector was ‘being held back by deleveraging, tight credit conditions and economic uncertainty’.

Hopes for an export-led recovery were also being hit as ‘declining productivity growth and high unit labour costs are holding back much needed external rebalancing’.



Mr Osborne has previously relied on the support of International Monetary Fund Managing Director Christine Lagarde for his efforts to boost the economy

And it explicitly suggested Mr Osborne change his deficit-reduction plans to boost growth. ‘In the United Kingdom, other forms of monetary easing could be considered, including the purchase of private sector assets and greater transparency on the likely future monetary stance.

‘Greater near-term flexibility in the path of fiscal adjustment should be considered in the light of lacklustre private demand.’

The IMF's projection for 2013 is more optimistic than the forecast of 0.6 per cent growth from the independent Office for Budget Responsibility (OBR).

Mr Osborne said in the Budget that the OBR had halved its forecast for this year from 1.2 per cent and had also cut its prediction for next year to 1.8 per cent.
''We are slowly but surely fixing this country’s economic problems'

Treasury spokesman


The IMF's forecasts for the UK come as the body warned ‘the road to recovery in the advanced economies will remain bumpy’.

Labour's shadow chancellor Ed Balls said: 'It was a serious mistake for George Osborne to totally ignore the IMF’s calls for a reassessment of fiscal policy in the Budget.


'They are right to step up their warnings and insist that a change of economic policy is considered right now.


'Our economy has flatlined for two and a half years, real wages are falling month by month and the result is £245 billion more borrowing than planned to pay for this economic failure. How much more damage needs to be done before the Chancellor finally acts?'

The Treasury stressed that the IMF prediction of 0.7 per cent growth for the UK was higher than the rest of Europe.


The report forecast a -0.3 per cent slump in the eurozone as a whole for 2013, with the single currency's economic powerhouse Germany expected to grow 0.6 per cent but France set to experience a -0.1 per cent contraction.



Of the major economies listed in the World Economic Outlook, the prediction of 0.7 per cent growth puts the UK well below the US, Canada, Japan and much of Europe

The World Economic Outlook predicted growth in the US of 1.9 per cent and 8.0 per cent in China.The forecast for world output growth has been cut from 3.5 per cent to 3.3 per cent.

A Treasury spokesman said: 'Today’s reports from the IMF highlight 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.

'However, as the Chancellor said at the Budget, we are slowly but surely fixing this country’s economic problems.


'The deficit is down by a third, a million and a quarter new private sector jobs have been created and because of the credibility the Government has earned, families and businesses are benefiting from near-record low interest rates.'

TUC General Secretary Frances O’Grady said: Three years ago the Chancellor boasted that the IMF was fully behind his economic plans, but now it has downgraded UK growth by more than other advanced economy due to lacklustre demand.'The Chancellor should listen to the IMF and reverse course by investing for growth and jobs. This would not only get the economy moving again but would also bring down the deficit more quickly in the medium term.'

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