THE INTERNATIONAL Monetary Fund (IMF) turned on Britain’s chancellor yesterday, as its top economist accused George Osborne of “playing with fire”.
But the Treasury fought back, and free market economists argued Osborne should ignore the IMF, step up his spending cuts and chop red tape to boost growth.
The IMF slashed its UK forecasts, attacked Osborne’s economic plans and warned the Eurozone will continue to drag down the UK economy.
The economy will grow by just 0.7 per cent this year, the IMF forecast, cutting 0.3 percentage points from its previous predictions in January.
And it thinks the UK will grow more slowly than expected next year, expanding 1.5 per cent, down from the 1.8 per cent forecast three months ago.
“In the UK the recovery is progressing slowly, notably in the context of weak external demand and ongoing fiscal consolidation,” the IMF warned. “Domestic rebalancing from the public to the private sector is being held back by deleveraging, tight credit conditions and uncertainty, while declining productivity growth and high unit labour costs are holding back much needed external rebalancing.”
No other advanced economy’s forecast has been cut back as far.
France’s 2013 forecast was slashed from 0.3 to minus 0.1 but its 2014 outlook stayed at 0.9 per cent. Germany’s 2013 forecast was raised 0.1 percentage points to 0.6 per cent. The US is set to grow 1.9 per cent in 2013, down from a prediction of 2.1 per cent.
The IMF acknowledged the deficit reduction plan is already slower than planned, but urged Osborne to consider spending even more to counter weak demand from the Eurozone.
“The danger of having no growth, or very little growth, for a long time is very high,” the IMF’s Olivier Blanchard told Sky News. “You’re playing with fire when you get to very low growth rates. If you can decrease the speed of fiscal consolidation maintaining credibility I think it’s worth considering.”
And the IMF called on the Bank of England to print money to buy up private sector debts.
“We are slowly but surely fixing this country’s economic problems,” said a Treasury spokesperson. “Though the UK is forecast to have stronger growth than either France or Germany in 2013, difficulties in the Eurozone are still creating economic headwinds.”
Mark Littlewood from the Institute for Economic Affairs said: “Economic growth will not come from spending ever-increasing amounts of money. We need a more radical plan to reduce spending, cut taxes and deregulate business.”