George Osborne’s spending cuts win IMF backing – for now

IMF tells the chancellor that the post-crisis repair of the British economy is underway The International Monetary Fund has come out in support of George Osborne’s austerity measures, saying the stability of the UK financial system is a “global public good” that requires close supervision. At the same time, John Lipsky, the acting managing director of the IMF, proposed “temporary tax cuts” if weak economic growth and high unemployment persist. In the IMF’s latest report on the UK , Lipsky told the chancellor that the post-crisis repair of the British economy is underway. He noted that weak economic growth and the pick-up in inflation over the last few months had been “unexpected”. “This raises the question whether it is time to adjust macroeconomic policies. The answer is no as the deviations are largely temporary,” said Lipsky. “The stability and efficiency of the UK financial system is a global public good due to potential spillovers and thus requires the highest quality of supervision and regulation.” He added that there are “significant” risks to inflation, growth and unemployment. “If they materialise, the policy response will depend on the nature of the shock.” The IMF has repeatedly downgraded the UK growth forecast for this year and cut it again on Monday, to 1.5% – down from 2.5% forecast in April 2010. Inflation is likely to remain above 4% for most of this year, it said, before gradually returning near the Bank of England’s 2% target. The comments come at a time of growing criticism of the chancellor’s drastic spending cuts . Official figures have painted a bleak picture of the economy, which flatlined over the fourth quarter of 2010 and first quarter of this year. George Osborne strongly defended his austerity measures on Monday, saying they would provide much-needed credibility and stability for the UK economy. More than 50 academics said the economy was too fragile and demanded in a letter to the Observer that the government pursue a “plan B” to boost jobs and growth. Other critics include Jonathan Portes, the director of the National Institute of Economic and Social Research, who until February was chief economist at the Cabinet Office and Vicky Pryce, who was head of the government’s economic service before becoming a director at FTI Consulting. Two experts who had previously publicly backed the coalition’s cuts have also expressed profound concerns over the direction of Treasury policy: professor John Muellbauer of Oxford University, an expert on the housing market and Tim Besley, a former Bank of England monetary policy committee member. The chancellor defended his plans on BBC Radio 4′s Today programme, expressing confidence in the future of the British economy. “We have flexibility built into our plan. But what our plan provides is credibility where there was no credibility, stability where there was no stability, confidence that actually the British economy is getting its act together.” IMF Economics Global economy Economic growth (GDP) Economic policy George Osborne Liberal-Conservative coalition Julia Kollewe guardian.co.uk

Posted by on June 6, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.