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IMF austerity warning to Britain

IMF austerity warning to Britain
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The International Monetary Fund is urging Britain to do more to boost growth in the face of the slow economic recovery there.

But that is unlikely to persuade finance minister George Osborne to change from his austerity programme as he focuses on the IMF’s acknowledgement of some economic and fiscal improvement.

The recommendations come in the IMF’s latest annual review of the UK economy. It was published just over a month after it reduced the growth forecast to 0.7 percent this year and 1.5 percent next year.

Previously it had projected growth of 1.0 percent and 1.8 percent.

At the same time the Bank of England’s top policymakers see signs the economy is improving and have held off launching more stimulus measures – such as buying further government bonds.

Last month the IMF recommended the UK central bank should do that.

It also believes Osborne should borrow more to fund investment, taking advantage of low interest rates.

The Bank of England was given more room to stimulate the economy, in essence printing money – by the fact that UK inflation fell to a seven-month low of 2.4 percent in the year to April.

In its review, the Fund did not directly says that Britain should delay further planned government spending cuts, but it is clear that is what it would like.

The IMF’s first deputy managing director David Lipton has said the UK economy remains weak, and could suffer permanent damage without additional help.

“Given the tepid recovery, policy should capitalise on nascent signs of recovery to bolster growth, notably by pursuing measures that address supply-side constraints and also provide near-term support for the economy,” the IMF said.

“In the current context in which labour is under-utilised and funding costs are cheap, the net returns from such measures are likely to be particularly favourable,” it added.