IMF urges UK to rein in austerity programme and cut taxes
THE UK government should rein in its flagship austerity programme and cut taxes or increase infrastructure spending if the economy has not regained momentum by early next year, the International Monetary Fund has urged.
It said yesterday that Britain faced "significant challenges" from a stalling recovery, high unemployment and threats from the eurozone crisis.
It also suggested that the Bank of England may be losing its ability to support demand while the government cuts spending.
Britain's economy has struggled to recover from the 2008/2009 slump and official data show that it is in its second recession in four years, with little sign of a swift turnaround.
However, any U-turn on the commitment to austerity could prove embarrassing to Britain's Conservative-Liberal Democrat government, which set itself the goal of largely eliminating the country's budget deficit over the next five years when it came to power in 2010.
The IMF's final conclusions, following its annual assessment of Britain's economy, echoed the recommendations made after the meetings with British officials in May, when IMF chief Christine Lagarde said policymakers should bolster demand before low growth becomes entrenched.
The IMF stopped short yesterday of calling for an immediate change to policy, saying recent stimulus by the Bank of England and measures to boost bank lending should be given time to bear fruit.
But it warned that a long period of stagnant growth and "alarming" youth unemployment could do lasting damage.
"Scaling back fiscal tightening plans should be the main policy lever if growth does not build momentum by early-2013 even after further monetary stimulus and strong credit easing measures," it said. (Reuters)