IMF backs Britain's economic policy

6th June 2011, Comments 0 comments

The International Monetary Fund on Monday backed the British government's policy of cutting public spending to slash a massive structural deficit.

The IMF said economic growth was shrinking but gave firm backing to the year-old coalition government's austerity programme, despite domestic calls for the pace of the cuts to be slowed.

In its annual report on the British economy, the IMF said weak economic growth and a rise in inflation over recent months had been "unexpected" and raised the question "whether it is time to adjust macroeconomic policies".

It said: "The answer is no as the deviations are largely temporary."

But it warned "there are significant risks to inflation, growth and unemployment", which may require policy to combat them.

The IMF slightly downgraded its growth forecast for the British economy to 1.5 percent, compared to 1.7 percent in its last projection in April.

However private investment and stronger net trade -- when exports outweigh imports -- should aid the overall economic recovery, the IMF added.

Over the medium term, the IMF foresees real GDP growth "accelerating gradually" to around 2.5 percent.

Acting IMF head John Lipsky told a news conference in London: "We expect the economic recovery to resume in 2011, albeit at a moderate pace.

"Although the unemployment rate remains unacceptably high, it appears to have stabilised and it is encouraging that employment growth has picked up recently."

Inflation is likely to remain above four percent for the rest of 2011, the IMF said, but will return to the government's two percent target at the end of 2012.

Prime Minister David Cameron's coalition government has faced calls to slow its programme of deep spending cuts because economic recovery has faltered since Britain pulled out of a record-length recession in late 2009.

Finance minister George Osborne has brandished the support of international organisations such as the IMF and the OECD for his economic policies in the face of the criticism from the opposition and trade unions.

But the government was surprised last month when the chief economist of the OECD, the Organisation for Economic Cooperation and Development, said there was "scope for slowing the pace" of the cuts.

Osborne, the Chancellor of the Exchequer, on Monday dismissed calls for a rethink of the deficit reduction strategy, saying it was the "rock" on which Britain's economic recovery was being built.

"The IMF expert team have spent two weeks here engaging with all shades of opinion, including those who have been calling on us to change course," Osborne said.

"The IMF have publicly asked themselves the question of whether it is time to adjust macro-economic policies -- in other words is it time to change course. They have concluded definitively that the answer is no."

He said critics of his policy should "join the dots" and recognise that a spike in oil prices and problems in eurozone countries such as Portugal and Ireland were causing "choppy" conditions.

Britain is aiming to eliminate the deficit by 2015 by raising some taxes and cutting public services with the loss of about 300,000 public sector jobs.

© 2011 AFP

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