View the article online at http://citywire.co.uk/money/article/a605627
Prepare to scale back austerity cuts, IMF tells UK
Consider cutting the base interest rate even lower, International Monetary Fund tells UK authorities.
The UK government should scale back its plans for deeper austerity cuts if it is unable to kick-start an economic recovery even with more aid measures from the Bank of England, the International Monetary Fund (IMF) has cautioned.
Warning of the risks to the stagnant British economy posed by public and private sector cuts, as well as the eurozone crisis, the IMF again said the Bank should continue cutting rock-bottom interest rates to below 0.5%. The Bank's monetary policy committee has discussed cutting rates in recent months, but so far rejected the idea.
Bank balance sheets should be strengthened, the fund said. It called for chancellor George Osborne to squeeze more out of his red briefcase, while keeping the budget neutral, with more investment spending funded by property tax reform or spending cuts.
The review of the UK's finances cautions that the coalition government may have to refrain from plans for greater fiscal consolidation if the ‘sluggish’ economy ‘does not build momentum even after further monetary and credit easing measures’. The Bank of England’s monetary stimulus – which includes the recently enlarged £375 billion quantitative easing scheme – has been bold, the IMF said.
‘A stalling recovery, high unemployment and uncertain external conditions continue to present significant challenges,’ the report says.
On Monday the IMF drastically cut its forecasts for UK economic growth to just 0.2% for this year and 1.4% in 2013.
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