LONDON (Reuters) - A senior IMF economist added pressure on Britain’s Chancellor George Osborne on Saturday to slow the pace of his deficit-cutting programme to take into account the country’s under-performance on growth.
David Lipton, first deputy managing director of the IMF, told Sky News television that the Fund would be raising the issue with the British government.
“The Fund’s view is clear. The UK economy has turned out to be somewhat weaker than had been foreseen, so our view is that the pace of consolidation ought to be reconsidered, and we’ll want to come and have some discussions over that,” he said.
Lipton’s comments echo similar views expressed by the most senior people in the IMF this past week, including Managing Director Christine Lagarde and Chief Economist Olivier Blanchard.
Osborne, in Washington for the Fund’s twice-yearly meetings, initially dismissed Blanchard’s comments as “one voice”, but it has since become clear that he was putting forward a view shared by those at the top of the IMF.
The admonishments from the IMF have compounded a bad week for the chancellor of the exchequer. On Friday Britain lost its AAA rating from a second agency, Fitch Ratings, after it had already been downgraded by Moody’s in February.
On Saturday a flagship scheme to help home-buyers announced in Osborne’s March budget was criticised by a non-partisan committee of legislators who said it risked being costly and counterproductive.
Sky News said Lipton’s comments were significant because the IMF official was scheduled to travel to London next month for so-called Article IV consultations on the state of the British economy.
Lipton said it was “very important that the UK government set as a goal fiscal consolidation”, but added that “the question now is whether the pace is right or too ambitious given the weakness of the economy”.
Data due next week could show the economy slipped into its third recession in less than five years in early 2013, although many economists expect it may escape that gloomy milestone by a whisker.
“The key to us, the bottom line to us, is that they may want to consider adjusting the pace of consolidation and that’s a subject we’ll want to take up during this Article IV consultation,” said Lipton.
Osborne, who has placed tackling the deficit at the heart of his economic strategy, has already suggested that he may not heed a formal call from the IMF for a change of policy.
“It depends on whether you agree with that advice,” he said in Washington when asked whether countries should follow IMF policy recommendations.
Article IV recommendations are often ignored by member countries.
Osborne has defended his response to Britain’s slowdown, saying he had already shown flexibility by allowing a target for cutting the country’s debt to slip and by announcing new measures to boost the housing market — the very scheme criticised by the committee of legislators.
Reporting By Estelle Shirbon; Editing by Stephen Powell