By Chris Giles and George Parker
Risk of global downturn sharply cut; Warning over ‘unbalanced’ recovery
British Chancellor George Osborne was given a significant boost yesterday when the International Monetary Fund retreated from its criticism of his austerity policies and predicted that Britain would grow faster than any other rich economy this year.
Just 12 months after claiming that the chancellor was “playing with fire” with his deficit reduction programme, the IMF raised its forecast for UK growth to 2.9 per cent this year – the fastest of any country in the G7 group of leading economies. It also praised Mr Osborne for sticking to his fiscal plan.
The upgrade to the UK forecast, which almost doubled the 2014 prediction given a year ago, was larger than for any other advanced economy.
The IMF’s verdict on the British economy came amid new data suggesting that the recovery is becoming more sustainable, with a strong upswing in manufacturing output. Mr Osborne believes that the improving economy will soon feed through into rising real wages, a factor he hopes to deploy against Labour’s claim that the recovery is not alleviating a chronic “cost of living crisis”.
Ed Miliband, Labour leader, said yesterday that the crisis would last for years and would only be alleviated by a new government willing to tackle “predatory” pricing by the energy sector and other companies.
But the chancellor will arrive in Washington for the spring meetings of the IMF and World Bank this week in a buoyant mood and is expected to deliver a message that other economies should follow Britain in delivering fiscal and economic reform.
The fund’s forecasts and its newfound support for the UK’s deficit reduction are likely to prompt a conciliatory speech from Mr Osborne in Washington on Friday. According to aides, the chancellor had been planning an “I told you so” message, referring back to last year’s battle with the IMF over austerity, but Treasury sources now say the speech will mostly look to the future.
In its World Economic Outlook, the IMF forecast UK growth of 2.9 per cent this year, the fastest in the G7 group of leading economies, and 2.5 per cent in 2015.
Instead of maintaining that Britain was wrong to try to eliminate its public sector borrowing over eight years, the IMF now says, “the government’s efforts to raise capital spending while staying within the medium-term fiscal envelope should help bolster recovery and long-term growth”.
However, it warned on the “unbalanced” nature of the UK’s recovery, suggesting that growth has come with much expanded mortgage lending and that “easier credit conditions have spurred a rebound in household spending”.
The Treasury said that the IMF’s support for austerity provided “further evidence that the government’s long-term economic plan is working”.
Ed Balls, shadow chancellor, said: “The IMF is right to warn about an unbalanced recovery. The government should also heed . . . warnings about surging house prices by taking action to boost housing supply.”
The IMF said a more sustainable recovery in rich countries had sharply reduced the risks of a new global downturn. It estimates only a 0.1 per cent probability of global recession in 2014, compared with a 6 per cent chance last October, with similarly reduced risks for 2015.
