By Lucy Phillips | 6 June 2011
The International Monetary Fund today endorsed Chancellor George Osborne’s deficit reduction plan, but cut its short-term growth forecast for the UK economy.
The IMF’s annual health check on the UK economy, published at lunchtime today, concludes that no changes are needed to the government’s economic policy, thereby sanctioning the speed and depth of the coalition’s spending cuts.
The global finance organisation says the weak growth and the rise in inflation over the past few months had been ‘unexpected’ but the effects were ‘largely temporary’.
‘Strong fiscal consolidation is under way and remains essential to achieve a more sustainable budgetary position, thus reducing fiscal risks,’ adds the report.
But the IMF warns that ‘vulnerabilities’ to financial stability remain, with ‘significant risks’ to inflation, growth, and unemployment. ‘If they materialise, the policy response will depend on the nature of the shock,’ the report says.
The IMF also cut its growth forecast for this year to 1.5%, having predicted growth of 2% for 2011 in November. But it retained its medium-term forecast of 2.5%.
The verdict comes a day after a group of 47 leading economists and academics called on the chancellor to produce a Plan B for the economy.
In a letterto the Observer they warned that the ‘breakneck deficit-reduction plan, based largely on spending cuts’ was ‘self-defeating’.
Osborne robustly defended his plans in an interviewon the BBC Radio 4 Today programme this morning.
