Osbornes welcomes IMF report on British economy

Britain's Chancellor, Finance secretary, George Osborne welcomed Tuesday the new IMF report on the British economy which recognised that "substantial progress was made towards balancing the books through deficit reduction programme here. In a statement, Osborne said: "The IMF couldn't be clearer today. Britain has to deal with its debts and the Government's fiscal policy is the appropriate one and an essential part of our road to recovery. "I welcome the IMF's continuing support for the UK deficit reduction plan. They agree that, in their words 'reducing the high structural deficit remains essential' and make clear in their statement that they consider the current pace of fiscal consolidation to be appropriate." In its report, the IMF warned an escalation of the eurozone crisis would deliver a "substantial contractionary shock" to the UK economy, setting back progress made towards recovery. The IMF identified uncertainty over the future of the euro as the main danger to recovery and warned: "Risks are large and tilted clearly to the downside." But the IMF noted that the economy remains "flat" and warned that the weak recovery may be "more protracted than previously anticipated". Although recovery is expected to gain pace from the second half of 2012, unemployment is "much too high" and much of the UK's productive capacity could remain "idle for an extended period", said the IMF. The fund called for further monetary stimulus, in the form of the Bank of England printing money in another round of "quantitative easing" or a reduction in the base interest rate from its record low of 0.5% to make borrowing cheaper. There is scope for the Government to boost growth through higher spending on infrastructure projects, which would increase employment and demand within the economy and could be funded within existing budgets by imposing further public sector wage restraint or reforming property taxes, it said. And if the UK recovery fails to take off, ministers must be prepared to use temporary tax cuts and more infrastructure investment to give the economy a shot in the arm, even if this means reining in the Government's austerity programme, said the IMF. To retain credibility in this scenario, ministers would need to deliver a new deficit-reduction programme to show how the books will be balanced over a longer period. Today's report follows an annual IMF mission to the UK to assess the state of the country's economy and the effectiveness of Government policies in supporting it. For his part, Osborne said the eurozone was reaching a "critical point" and confirmed that Britain was preparing to deal with the shock of a failure in the single currency. "In the UK, we have a flexible exchange rate and an independent monetary policy which allows us to ease the process of fiscal adjustment with a lower exchange rate and supportive monetary policy," he said. "But in the eurozone, indebted countries have to deal with high budget deficits without that support. "It is clear that we are now reaching a critical point for the eurozone. "Eurozone countries need to stand behind their currency or face up to the prospect of Greek exit, with all the risks that that could involve. "The British Government is doing contingency planning for all potential outcomes. It is our responsibility to ensure that while we work for the best, we prepare for something worse. "The IMF must also prepare for the consequences if members in Europe don't follow its advice".