UK urged to cut rates - Gulf Daily News

LONDON: Britain's struggling economy needs the Bank of England to pump in more money and possibly cut record-low rates, while the government should back off its austerity programme if things get worse, the International Monetary Fund said yesterday.

The international lender said the government should step up efforts now to get credit flowing, raise infrastructure spending and, if the euro zone crisis escalates, consider temporary cuts to sales and payroll taxes.

"Growth is too slow and unemployment, including youth unemployment, is too high. Policies to bolster demand before low growth becomes entrenched are needed," said IMF chief Christine Lagarde.

She was speaking after the IMF delivered its latest economic outlook for Britain, a country still struggling to recover from a deep downturn caused by the 2007-2009 financial crisis.

The economy fell back into recession early this year, and the escalating euro zone crisis risks making it worse.

"If the economy turns out to be significantly weaker than forecast, fiscal easing should be considered," Lagarde added.

The IMF calls may give Finance Minister George Osbourne some cover to relent on his tough austerity plan, if necessary.

The IMF said the onus for providing more stimulus lay first with the Bank of England, which it urged to restart its quantitative easing asset-buying programme and possibly to cut interest rates from their record low 0.5pc.

The Bank of England has bought £325 billion ($514bn) worth of government bonds with newly created money to boost the faltering economy, but halted the money printing presses this month on concerns over stubbornly high inflation.

Governor Mervyn King has, however, left the door open for further easing when he presented the bank's quarterly inflation forecasts last week.

The bank, which has also kept rates at a record low of 0.5pc for over three years, may have room for additional easing, after data yesterday showed UK inflation fell to 3pc in April, its lowest level in more than two years.