IMF tells Osborne: ease the austerity
Catriona Stewart Columnist/reporter Sunday 21 April 2013
CHANCELLOR George Osborne is under increasing pressure from the International Monetary Fund (IMF) to ease his austerity programme.
David Lipton, the IMF's first deputy managing director, said the "pace of consolidation" should be reconsidered given the weakness of the UK economy.
It is a fresh blow for Osborne, who yesterday saw a second ratings agency strip the UK of its prized AAA status.
Fitch placed the UK on an AA+ rating, following Moody's downgrade of UK debt in February, saying the move reflected a "weaker economic and fiscal outlook".
Earlier this week the IMF cut the UK's growth forecast growth from 1% to 0.7% this year and 2014's projection from 1.9% to 1.5%, noting the recovery was "progressing slowly".
Lipton said: "The Fund's view is clear: the UK economy has turned out to be somewhat weaker than had been foreseen, so our view is the pace of consolidation ought to be reconsidered, and we'll want to come and have some discussions over that."
Lipton stressed it was still "very important" that the UK Government maintained fiscal consolidation as a goal. But he added: "The question now is whether the pace is right or too ambitious given the weakness of the economy.
"The key to us, the bottom line to us, is that they may want to consider adjusting the pace of consolidation."
He said the subject would be discussed with the UK during the "Article IV consultation" – the annual health check on the economy.
Lipton's comments come as Mr Osborne criticised the SNP for "tying themselves in knots" over plans to retain the pound in the event of a Yes vote next year.
In a UK Government article, co-written with Treasury Chief Secretary Danny Alexander, they said a currency union could only work as part of a political and economic union.
The article comes ahead of the publication on Tuesday of the UK Government's analysis of the implications for the currency of an independent Scotland.
The Scottish Government has set out plans to retain the pound as Scotland's currency if the country votes for independence in next year's referendum, in what the First Minister has described as a "sterling zone" with the rest of the UK.
Economics experts in the Fiscal Commission Working Group, set up by Alex Salmond, have already concluded that keeping sterling as the currency in an independent Scotland was "sensible" and an attractive choice for the rest of the UK.
In the article, Osborne and Alexander wrote: "This isn't a question of whether or not Scotland could go it alone – of course Scotland could.
"The real question is whether going it alone is the best way for people living in Scotland to realise their aspirations and provide security for themselves and their family.
"For the advocates of independence the United Kingdom doesn't work. For them all the risk and uncertainty of separation is worth it just to have control of all the decisions of a fully sovereign state. But they're tying themselves in knots.
"They know in their heart of hearts that the economic and political union we have across the UK does work. And that a formal currency union can only work with political and economic union.
However, Deputy First Minister Nicola Sturgeon said maintaining the pound in an independent Scotland was the "common sense position supported by the facts".
"A sterling zone is in the economic interests of the rest of the UK every bit as much as it is in the interests of Scotland," she said.
"An independent Scotland using the pound will mean Sterling's balance of payments will be massively boosted by Scotland's huge assets, including North Sea oil and gas – which alone swelled the UK's balance of payments by £40 billion in 2011-12."
Meanwhile, a Westminister committee has warned Osborne his plan to boost home ownership risks skewing the housing market and leaving the Treasury with a hole in its coffers. MPs on the Treasury select committee fear the Chancellor's decision to introduce mortgage guarantees under the Help To Buy scheme makes the Government a player in the market with an interest in maintaining house prices.