Speaking at an IMF meeting in Washington, Lagarde said the fund’s forecast for the UK’s economy – which yesterday predicted the public finances would remain in deficit until 2020 – had ‘erred on the side of caution’.
The IMF’s prediction contrasts with official Treasury projections, which show a surplus in the public finances by 2018/19.
Speaking at an event alongside Chancellor George Osborne, Lagarde said the coalition had managed to strike the right balance of spending cuts and revenue raising.
‘It's clearly also delivering results, because when we look at the comparative growth rates delivered by various countries in Europe, it's obvious that what's happening in the UK has actually worked.’
The difference in deficit projections were due to a caution in the IMF forecasts due to the uncertainty ahead of the general election on May 7, she added.
‘Generally in any election year, the teams that provide the hypotheticals on which future deficits are forecast, err on the side of caution and assume that whatever is announced is not necessarily or inevitably going to happen.’
In a statement released at the meeting, Osborne said the government needed to continue implementation of a responsible medium-term fiscal consolidation plan.
‘Public debt and deficits remain too high in many advanced economies, including the UK, and the task of fiscal consolidation is not yet completed,’ he said.
‘The UK’s headline deficit has fallen from its peak to a forecast 5% of gross domestic product in 2014/15. Credible, medium-term frameworks for fiscal discipline that can anchor markets’ confidence remains a priority.’
