IMF warns Britain - Oman Daily Observer

LONDON — The International Monetary Fund yesterday said Britain may need to further slow the pace of its tough austerity measures to lift the country's growth amid the risk of a major euro zone "shock".
"Fiscal easing and further use of the government's balance sheet should be considered if downside risks materialise and the recovery fails to take off," said the fund's annual report on Britain.
"If growth does not build momentum... planned fiscal adjustment would need to be reconsidered," it added.
If growth remains low, Britain should consider temporary tax cuts and more infrastructure spending, the report said, along with monetary stimulus and a possible further cut to interest rates below 0.5 per cent.
The world's seventh largest economy slipped back into recession at the end of last year but Prime Minister David Cameron has stood by tough austerity measures, albeit at a slower pace than before.
The fund's report noted unemployment stood at 8.2 per cent while output was more than 4 per cent below its pre-crisis peak, but still predicted a modest return to growth in the second half of 2012 provided Europe's crisis eases.
"Unfortunately economic recovery in the UK has not yet taken hold and stresses abound," IMF Managing Director Christine Lagarde told reporters, warning of the risk that low growth could become "entrenched".
Lagarde said Britain should "use its government budget and the extra favourable financial terms on which it borrows today to support growth."
But, she said, "I shiver" to think of "what the situation would be now had not fiscal consolidation taken place" after May 2010, when the current Conservative-led coalition took power.
"There's no question that fiscal consolidation measures across Europe have improved the credibility of countries that have adopted them," she added.
The fund stressed that the euro zone crisis remained the biggest risk to Britain's economy, as the 17-nation bloc struggles to develop viable ways to keep debt-stricken Greece in the single currency. — AFP