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• Chancellor again refuses to change direction • IMF boss Christine Lagarde says UK must remain ‘nimble’ • Osborne hints at more quantitiative easing George Osborne mounted a strong defence of his deficit reduction plan on Friday, hailing it as the “rock of stability” that will prevent Britain being wrecked by the global financial crisis. The chancellor again refused to change direction in the face of poor economic news at home and abroad, in a speech in which he reiterated that Britain’s deficit must be vigorously tackled. Otherwise, Osborne warned, Britain’s homeowners and businesses would suffer. “Britain will stick to the deficit plan we’ve set out. It’s the rock of stability on which our recovery is built,” he said. “It’s delivered record low interest rates. Abandoning it would put that at risk. For nothing would be more damaging for Britain at this fragile moment for the world’s economy than an increase in mortgage rates for families and an increase in the cost of borrowing for businesses.” Osborne was speaking at Chatham House in London alongside Christine Lagarde, the new managing director of the International Monetary Fund. She said that the IMF continued to support Osborne’s fiscal consolidation plan, but warned that the deteriorating global economy means the chancellor must remain “nimble”. “Since the summer the outlook has become more subdued, including in the rest of Europe and the United States, the UK’s major trading partners. So risk levels are rising. The policy stance remains appropriate, but this heightened risk means a heightened readiness to respond, particularly if it looks like the economy is headed for a prolonged period of weak growth and high unemployment,” Lagarde said. Osborne acknowledged this point, and said that monetary policy – implemented by the Bank of England – could become more “accommodative” if needed. On Thursday the Bank decided not to increase its quantitative easing programme , but some economists believe this asset-purchasing scheme could soon be enlarged. The meeting came just a day after the Organisation of Economic Co-operation and Development (OECD) predicted that the UK economy will barely grow in the second half of 2011 . The OECD also predicted that the eurozone economy will shrink in the final three months of the year. Earlier this week, data showed that UK retail sales fell in August while the dominant services sector suffered its steepest slowdown in a decade . Football, not a tug of war Osborne and Lagarde are heading for Marseille later on Friday for a meeting of G7 finance ministers. This gathering will focus on efforts to revive global growth, but will be dominated by the ongoing European debt crisis. Lagarde said it was crucial for eurozone leaders to rapidly agree the details of the deal hammered out in July, which included a second bailout for Greece. She also warned that some European banks need fresh capital injections to cover losses on sovereign debt and reassure the financial community that they are safe. “We must not underestimate the risks of a further spread of economic weakness, or even a debilitating liquidity crisis,” Lagarde said, harking back to the dark days of 2008. Osborne argued that the current crisis requires a more sophisticated response than three years ago. “In 2008 the world had to act like a tug of war team, all pulling in the same direction. Today, we need to be like a football team – with everyone’s role suited to their positions and abilities if the team is to be successful,” the chancellor said. The global economic slowdown means world leaders must make growth a top priority, although they may lack the tools and the political agreement to be successful, warned US treasury secretary Tim Geithner. “The shocks behind the slowdown – oil prices, Japan’s disaster, the crisis in Europe – are severe enough to have been dangerous even if they had happened during a global boom. They are more dangerous now because they hit a world still healing from financial crisis and because of the general fear that political constraints will prevent governments and central banks from acting sensibly with the tools available,” Geithner wrote in Friday’s Financial Times . America’s President Barack Obama also put growth and employment at the top of the US agenda on Thursday night with a $447bn package aimed at cutting joblessness and stimulating the economy. Economics Global economy Economic policy George Osborne IMF Christine Lagarde Graeme Wearden guardian.co.uk