IMF says time to take stock

George Osborne The IMF thinks George Osborne should change the pace of the austerity plans

The IMF were polite in their published verdict on UK policies today - polite, and somewhat nuanced. So much so, that the Fund's deputy managing director had to spell out the implications to journalists in the press conference, a while after the statement was released.

But David Lipton was quite clear: the Fund has been saying for several years that the chancellor might have to slow the pace of deficit cuts if the economy continued to under-perform. In the staff's view, that day has now finally arrived.

The Fund doesn't think the chancellor should tear up his austerity plans or go back to square one. This is not a full-throated call for a Plan B. But as I suggested in April, that was never seriously on the cards.

What Mr Lipton and his colleagues have said is that it would be better for the economy and the government's long-term fiscal credibility if it did more to support growth this year - even if it means borrowing up to £10bn more, this year, than the chancellor currently plans.

That £10bn is the extra fiscal consolidation that is due to happen this year (i.e. the planned fall in the structural deficit - even though, as we know, total borrowing is likely to be broadly flat). The IMF thinks that implies an unwelcome "headwind to growth" which the chancellor can and should offset, including by bringing forward infrastructure spending.

Many of the measures the IMF has suggested have already been tried by the Treasury - I put it to the deputy IMF managing director that he was simply suggesting the chancellor do things they were already doing. He didn't accept my characterisation. He said, in terms, that the Treasury was talking about doing these things, but they were also very focussed on meeting their existing targets. In the Fund's view, he said, they should worry a bit less about the targets over the next year, and a bit more about supporting growth.

Again, we're not talking U-turns or a Plan B. This is not the mighty biff in the nose for the chancellor that the opposition might have been hoping for. There is much praise for the government here too. Crucially, the Fund doesn't think the government should slow the pace of deficit reduction overall - they still think the medium term plan makes sense. But it does, finally, think the chancellor should not just think about changing the pace of the austerity plans - but actually do it.

Stephanie Flanders, Economics editor Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 9.

    The BofE have created over £200bn of cash - this has just gone to banks who have been able to lower savings rates and reinflate the housing bubble.

    It would be better for this cash to go straight into housing and infrastructure investment rather than propping up zombie banks

    or alternatively we could all recieve a £5k tax rebate.

    Time for something new - old ideas are not working!

  • rate this

    Comment number 4.

    Is that the same IMF who didn't even see the financial crisis coming?

    You would be better off asking for a prediction from Mystic Meg.

    Steady as she goes.

  • rate this

    Comment number 10.

    The distinction is between 'spending' and 'investing'. I've seen a lot of government spending over the last few decades - from both red and blue teams - but very little government investment.

    If the government had invested wisely, the economy and, more importantly, the people would be feeling the return on that investment.

    Short-term vote winning tactics encourages spending, not investment.

  • rate this

    Comment number 17.

    Is this the good cop bad cop routine back in town....

    Who are the IMF and where do they get their money from ??

    They are just another cog in the ponzi scheme,and as such another layer of totally Un-necessary expense that is piled on to world wide tax payers to keep alive a totally flawed and imo fraudulent economic system.

  • rate this

    Comment number 14.

    Economic mismanagement is the sickness; England is the patient; good governance is the medicine; but the IMF is certainly not the best doctor.


Comments 5 of 164



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