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09 October 2012

FT: IMF urges Britain to prepare for Plan B


The International Monetary Fund has moved a step closer to withdrawing its support for the UK's economic strategy, advising the government to redraw its fiscal tightening plan if growth disappoints in the coming quarters.

The fund sharply revised its forecast for the UK economy this year from growth of 0.2 per cent to a contraction of 0.4 per cent. The fund now expects growth of 1.1 per cent next year, rather than 1.4 per cent.

But if growth undershoots these estimates – and monetary policy and automatic stabilisers, which allow for the lower tax revenues and higher benefit payouts associated with a weak economy, failed to lift the economy – then the IMF advised the UK to reconsider the timing of its fiscal retrenchment.

“If growth should fall significantly below current projections, countries with room for manoeuvre should smooth their planned adjustment over 2013 and beyond”, the fund said, adding that they included the UK.

A UK Treasury spokesman said: “In line with other recent forecasts, the IMF are today showing a downward revision to growth prospects across both advanced and emerging economies, which is why they repeat their advice that the first line of defence against this should be to allow the automatic stabilisers to operate, monetary policy easing and measures to ease the flow of credit – all of which the UK is doing".

Full article (FT subscription required)



© Financial Times


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