IMF urges UK to spend more to fund investment
BRITAIN’S government should spend more now to fund investment and steer its economy back to recovery, the International Monetary Fund said on Wednesday, a call unlikely to be heeded by finance minister George Osborne.
Economic data earlier on Wednesday highlighted the challenge facing Osborne. Retail sales slumped last month while a measure of public borrowing jumped to a record high.
In a relief for the under-fire Conservative-led government, the IMF's annual report did not repeat an explicit call by the Fund in April for Britain to consider slowing the pace of spending cuts aimed at reducing its hefty budget deficit.
Prime Minister David Cameron is under intense pressure from his own lawmakers over his policies on Europe and gay marriage and has had to quell speculation that his coalition might not last until the next election.
But at a news conference at Britain's finance ministry to present the report, IMF deputy managing director David Lipton made clear that he still thought a change of tack was needed.
"What is important now is not to make a mistake today and presume that all will be well with the economy some years from now. I think it's important to get started on infrastructure projects that will support the economy," he said.
As well as more spending on roads, housing and schools, lower corporation tax and incentives for firms to issue shares would help, Lipton added.
As Osborne sat watching, Lipton stressed he was not calling on the government to abandon the deficit-reduction plan that was a centrepiece of its 2010 election campaign, and which it has clung to even as the euro zone crisis buffets Britain's economy.
But the government should consider pushing back some of its belt-tightening to later in the five years over which Osborne aims to balance the budget.
"In essence ... allow the adjustment to take place in a more back-loaded fashion and provide more support for the economy at the front end of the period," Lipton said.
The IMF expressed concern that a scheme to boost the housing sector might simply push up prices and called for a "clear strategy" on returning state-controlled Royal Bank of Scotland and Lloyds Banking Group to private ownership.
Since the financial crisis, Britain has endured one of its slowest economic recoveries, although the outlook has improved after a 0.3pc expansion in the first quarter of this year.