This sounds like it’s too little, too late. ~J
George Osborne has been warned by the International Monetary Fund that he risks further damaging the economy unless the pace of austerity slows and he faces up to the country’s “growth challenge”.
Chancellor George Osborne addresses the Conservative Party Conference at Birmingham’s International Convention Centre Photo: David Jones/PA
By Philip Aldrick, Emma Rowley and Roland Gribben
The Telegraph, UK
9:12PM BST 14 Oct 2012
David Lipton, the IMF’s deputy managing director, suggested the Chancellor may have to take bolder measures to ease the pain of cuts to spending and instead give higher priority to rescuing the flagging economy.
“Our view has been that doing nothing is not a good answer given the problems that could arise when very, very low growth becomes entrenched,” Mr Lipton told The Daily Telegraph as the IMF and World Bank annual meetings in Tokyo wound down.
He also said the Bank of England should look at being more inventive in the way it used quantitative easing to aid recovery by buying assets other than gilt-edged securities.
His strictures reflect a more critical IMF view about the government’s debt reduction programme. The tone has recently changed and is being echoed in a loss of confidence among Britain’s business leaders.
But inside the Treasury there is irritation that the IMF has been slow to recognise policy shifts to stimulate growth. Last year the Chancellor extended the £123bn deficit reduction programme by two years to 2017 and Mr Lipton expects Mr Osborne will be forced to repeat the exercise and lengthen the extension.
He said: “This is a challenge that doesn’t necessarily go away. Going forward there’s a need to keep an eye on this subject.”
Vince Cable, the Business Secretary, yesterday acknowledged that the government’s biggest challenge over the next year is balancing the need to stimulate growth while maintaining confidence in the money markets about the debt programme.
“We started off aiming to deal with the structural deficit in four years and we’ve now said we’ll deal with it in six because the economy has slowed down making it more difficult,” he said during a debate at the Cheltenham Literature Festival.
Last week the IMF slashed this year’s growth forecast for Britain by 0.6 percentage points – the biggest downgrade for rich nations – and said the economy would contract by 0.4pc. Next year’s growth prediction has been cut from 1.4pc to 1pc.
Mr Osborne arrives back from the IMF meeting to a more optimistic forecast today from the Ernst & Young Item group. It expects growth of 0.7pc in the third quarter this year to limit the full year downturn to 0.2pc and is looking for a housing market recovery to help the economy grow by 1.2pc next year.
But it added that it still involves the “wrong kind of growth”, relying not on exports as hoped but on consumer spending and a recovery in the housing market, and there are mixed indicators from other surveys released today. Lloyds TSB says the squeeze on spending power resulting from the inflation rate outstripping pay rises has deepened with consumers having around £100 less than a year ago to buy non-essentials.
- IMF warns of fresh global crisis unless eurozone finds a fix (guardian.co.uk)
- Austerity will continue, says David Cameron, despite IMF deficit warning (guardian.co.uk)