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30th Sep 2022

Delay austerity and increase investment, IMF warns UK

  • Lagarde: go for growth not further cuts, the IMF has warned (Photo: World Economic Forum)

The UK should delay plans to push through further austerity measures worth £10 billion (€12 billion), the International Monetary Fund (IMF) warned on Wednesday.

Speaking on Wednesday (22 May) following the completion of a two week mission in London, IMF deputy director David Lipton called on the Conservative-led government to delay new tax rises and spending cuts

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The extra cuts would "pose headwinds to growth…..at a time when resources in the economy are under-utilised," said the Washington-based institution.

Instead, the IMF urged London to bring forward plans to invest in infrastructure projects and to offer incentives for private investment by reducing corporate tax rates.

The government "could undertake a reform of property taxes and consider broadening the VAT base" to pay for the measures.

It also urged the government to prepare the sale of taxpayer owed stakes in the RBS and Lloyds' bank.

"It's useful for the economy for some infrastructure and other measures to be brought towards the present. That would reduce the drag in this year and in the coming years," added Lipton.

Although Britain narrowly avoided a triple dip recession by recording economic growth of 0.3 percent in the first quarter of 2013, output is still below its pre-crash level in 2007.

Income per person is still 6 percent below 2007 levels. It is also attempting to reduce one of the largest budget deficits in the EU, while the country's debt pile has nearly doubled since 2008 and is expected to reach 99 percent of GDP in 2014.

The IMF estimates that the UK economy will expand by 0.7 percent in 2013 if the government sticks to its £10 billion of tax and spending measures, a figure which it believes would rise to 1.3 percent if the cuts were pushed back for a year.

The IMF's announcement is the latest sign that economic experts believe that the pace of deficit reduction should be slowed to allow stronger economic growth. The European Commission has also indicated that a number of countries, including France and Spain, should be given extra time to balance their budgets.

IMF warns Europe of falling behind US on recovery

Europe is falling behind the US in emerging from the economic crisis, with sluggish growth in Germany and recession in France worsening the outlook for eurozone periphery countries, the IMF has said.

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