January 24, 2013 / 9:27 AM / in 8 years

IMF chief economist tells UK to adjust austerity plan

International Monetary Fund's Economic Counsellor and Director of the Research Department, Olivier Blanchard speaks at a joint news conference on the World Economic Outlook January 24, 2012 at the IMF Headquarters in Washington, DC. REUTERS/Stephen Jaffe/IMF/Handout

LONDON (Reuters) - Britain should consider slowing down its austerity plan in response to persistent economic gloom and the March budget announcement would be a good time to do so, the International Monetary Fund’s chief economist said on Thursday.

Britain is teetering on the verge of a third recession since the 2008 financial crisis, pressured by a toxic mix of the government’s deficit-cutting drive, troubles in its main trading partner, the euro zone, and erosion of real earnings.

Numbers due out on Friday are expected to show that the economy contracted at the end of 2012 after only three months of expansion, and on Wednesday the IMF cut its 2013 forecast for British economic growth to 1.0 percent from 1.1 percent predicted in October.

“Our earlier advice is still very much there. We said if things look bad at the beginning of 2013, which they do, then there should be a reassessment of fiscal policy. We still believe that,” Olivier Blanchard told BBC Radio 4.

“You have a budget coming, I think in March. We think this would be a good time to actually take stock and see whether some adjustments should be made.”

Asked to specify what form the adjustments should take, Blanchard said: “Slower fiscal consolidation in some form may well be appropriate. The exact numbers I don’t know, that has to be worked out.”

The government has shown no sign of shifting course on its programme of austerity, with Chancellor George Osborne telling ministers this week they will have to find new savings in departmental budgets for 2015-16.

Reporting by Estelle Shirbon; editing by Patrick Graham

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