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UK's austerity plan needs ‘adjustment’, IMF economist says


Chief economist Blanchard says March ‘budget’ the time for a rethink

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The UK should consider slackening its austerity drive in response to persistent economic malaise, Olivier Blanchard, chief economist of the International Monetary Fund (IMF), said on Thursday.

Earlier on Wednesday, the IMF cut its 2013 forecast for UK economic growth from the 1.1 percent rate it predicted in October to 1.0 percent.

Speaking to BBC Radio 4 at the World Economic Forum in Davos, Blanchard said, "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."

"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," he added.

The IMF economist called for "slower fiscal consolidation" but added that he could not put out exact numbers as the figures had to be "worked out."

According to the Office for Budget Responsibility (OBR), the UK economy will see -0.1 percent growth in 2012 followed by 1.2 percent next year, then 2.0 percent in 2014, 2.3 percent in 2015, 2.7 percent in 2016 and 2.8 percent in 2017.

On the deficit front, the OBR forecasts a fall from 7.9 percent in 2011 to 6.9 percent in 2012, then 6.1 percent, 5.2 percent, 4.2 percent, and 2.6 percent, reaching 1.6 percent in 2017-18.

So far, Chancellor of the Exchequer George Osborne has stuck with his austerity plan. In a statement in December, he announced further cross-departmental cuts, bar investment in the NHS and schools.

He has doggedly stuck to his opinion that public sector cuts and job losses would be made up by the private sector. The UK’s preliminary estimates for economic performance in the fourth quarter of 2012 are due to be published on Friday by the Office for National Statistics (ONS).

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UK's austerity plan needs ‘adjustment’, IMF economist says
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