The IMF has said Britain’s struggling economy needs the Bank of England to pump in more money and perhaps cut interest rates, already at a record low 0.5 percent.
International Monetary Fund head Christine Lagarde, on a visit to London, told UK finance minister George Osborne his government should back off its austerity programme if things get worse.
She also warned about splash over from Europe’s debt problems: “The stresses in the euro area affect the UK through many channels, growth is too slow and unemployment – including youth unemployment – is too high. Policies to bolster demand, before low growth becomes entrenched, are needed.”
Lagarde was speaking after the IMF delivered its latest economic outlook for Britain, a country still struggling to recover from a deep downturn caused by the 2007-2009 financial crisis. The economy fell back into recession early this year, and the escalating eurozone crisis risks making it worse.
British finance minister George Osborne said: “It’s clear we are now reaching a critical point for the eurozone. The eurozone countries need to stand behind their currency, or face up to the prospect of Greek exit. The British government is doing contingency planning for all potential outcomes; it is our responsibility to ensure that while we work for the best, we prepare for something worse.”
The IMF said the British government should step up efforts now to get credit flowing, increase infrastructure spending and, if the eurozone crisis escalates, consider temporary cuts to sales taxes and payroll taxes.
The international lender’s calls may give Osborne some cover to relent on his tough austerity plan, if necessary.
The Conservative-led coalition government has staked its political reputation on eliminating a budget deficit that was a record 11 percent of economic output when it came to power, but public support for the policy has crumbled as the economy has fallen back into recession and Britons feel the pinch.
The IMF continued to back the UK government’s austerity plan in principle, though it applauded last November’s decision to prolong the austerity period rather than cut faster.