Deficit row as IMF calls for growth
THE IMF heaped praise on George Osborne’s deficit reduction plans yesterday, but warned that the coalition might have to change tack if the economy worsens much further.
IMF boss Christine Lagarde expressed delight at the austerity measures, saying “when I think back to May 2010, when the UK deficit was at 11 per cent and I try to imagine what the situation would be like today if no fiscal consolidation programme had been decided, I shiver”.
But the IMF’s report said Osborne should spend less on public sector wages and more on infrastructure if he wants to boost growth and jobs.
The chancellor welcomed the report, hitting out at opponents who have called for the government to “borrow and spend its way out of a debt crisis”, arguing fiscal responsibility “is an essential part of our road to recovery,” in part because “it enables interest rates to stay low”.
But Lagarde told Osborne he must be prepared to be flexible if the Eurozone crisis worsens and the economy slides further, suggesting a temporary boost from tax cuts and spending increases could stave off a deeper recession in the short-run.
“The IMF is right to call for action to stop slow growth and high unemployment causing long term damage to our economy,” said shadow chancellor Ed Balls. “A year ago the IMF warned that if economic growth undershot expectations, the government should boost the economy with temporary tax cuts and greater infrastructure spending.
“Since then our economy has been pushed into a double-dip recession. There is no case for delay and there can be no more excuses.”