IMF's Christine Lagarde gives George Osborne his soundbite

 

Update added below at 11.50am

It was the soundbite of the chancellor's dreams. The head of the IMF said that when she looked back at the UK's deficit in May 2010 and imagined there being no plan to reduce it "I shiver".

This came after Christine Lagarde had backed "the policy mix" ie the combination of government tax and spending policies and the Bank of England's interest rate and quantitative easing policies.

In particular, she highlighted the fact that the government significantly slowed down its deficit reduction plans last autumn by extending the plans by two years - beyond the next election.

She said that the choice between deficit reduction and growth was a false one and called on Europe to boost growth by structural reforms, not by spending more.

The sting in the IMF tail appeared to be calls for the government and the bank to do more to protect the poor, get credit to business, invest more in infrastructure and, if growth continues to flatline, to consider a temporary cut in VAT in future.

I have not yet read the detailed IMF report. It is sure to contain more concerns which Labour can point to.

However Ed Balls may be left asking the question asked by my colleague Stephanie Flanders - given the IMF's been suggesting for two years that the UK deficit reduction policy should ease if growth has slowed and given that it's slowed to below zero, then when will it be time to consider a change?

Update 11.50am: Sure enough. Here's the key paragraph in the IMF report which Labour can quote - it holds out the future prospect of easing up on cuts or a temporary tax cut - like the VAT cut proposed by Ed Balls.

13. Fiscal easing and further use of the government's balance sheet should be considered if downside risks materialize and the recovery fails to take off. In particular, if growth does not build momentum and is significantly below forecasts even after substantial additional monetary stimulus and further credit easing measures, planned fiscal adjustment would need to be reconsidered. Under these circumstances, gains from delaying fiscal consolidation could be larger as multipliers are estimated to move inversely with growth and the effectiveness of monetary policy. To preserve credibility, reconsidering the path of consolidation should be in the context of a multi-year plan focused on further reducing the UK's large structural fiscal deficit when the economy is stronger and taking into account risks to sovereign borrowing costs. Fiscal easing measures in such a scenario should focus on temporary tax cuts and greater infrastructure spending, as these may be more credibly temporary than increases in current spending.

 
Nick Robinson, Political editor Article written by Nick Robinson Nick Robinson Political editor

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