IMF firmly backs coalition cuts plan
By Peter Wozniak
George Osborne received a large boost to his plans for Britain’s economy, with the IMF’s health check of Britain’s economy resoundingly backing the coalition’s aggressive programme of deficit reduction.
The report argued Britain’s economy is on the road to recovery, predicting growth of two per cent in 2011, rising to 2.5% in the medium-term.
It added that although the regime of spending cuts may slow growth for a time, it is a better long-term strategy for consumer confidence and private sector recovery than any more cautious approach.
The report concluded: “The government’s strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability.
“The plan greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery.”
Crucially, it stated that the slow-down of growth would not lead to the much-feared ‘double-dip’ recession, which has been until now the crux of Labour’s argument against rapid deficit reduction.
“Fiscal tightening will dampen short-term growth but not stop it as other sectors of the economy emerge as drivers of recovery, supported by continued monetary stimulus”, it said.
The report sounded a note of caution, arguing that new shocks to the economy could not be ruled out in the current atmosphere of uncertainty, but there was little critique of the government’s approach in itself.
The report also highlighted the need for a more coherent system of financial regulation globally, echoing Gordon Brown’s similar call during a lecture at Harvard university last week.
All focus will however be on the political implications of the report, coming as it does weeks before the comprehensive spending review which will see drastic cuts to government departments in a bid to tackle Britain’s budget deficit and record levels of borrowing.
Had the report expressed more concerns about the government’s plans, the screws would be tightening on the coalition, but the surprisingly unqualified support for Mr Osborne’s economic strategy places the pressure, temporarily at least, onto the opposition.
The government will particularly welcome the timing of the report, coming as it does during the Labour conference, with new leader Ed Miliband now likely to endure probing questions on his as-yet unclear economic strategy.
Mr Miliband’s fellow leadership candidate Ed Balls has been the most radical in arguing against focusing on the deficit, and has been in conflict with the view propounded by Alistair Darling, based on halving the deficit over four years.
Mr Darling has argued at conference that the party needs to be “credible” in its position on the economy and the deficit.
Neither man however will find much solace in the IMF’s verdict. Much will depend on Mr Darling’s replacement as shadow chancellor, with David Miliband not yet committed to stand for a frontbench role, while Mr Balls is understood to be keen on the position.
The boost for Mr Osborne may however be temporary, given that the public reaction to spending cuts is likely to be particularly negative as they become a political reality, regardless of the opinion of the IMF.
The spending review will be published on October 20th, to be preceded by protests by trade unions.
