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IMF Tells Osborne It's Time For Plan B

(c) Sky News 2013

The IMF's chief economist has suggested that Chancellor George Osborne should tone down his austerity measures in the next Budget.

Olivier Blanchard said the financial statement in March would be a good time for Mr Osborne to "take stock" of his plan A on the economy.

The comments came after the organisation trimmed its forecasts for UK and global growth.

The British economy is now expected to expand by 1% rather than 1.1% this year, and 1.9% rather than 2.2% next year.

They also came 24 hours before GDP figures for the end of 2012 are due to be released, amid fears they will show a contraction.

This will increase concern about a "triple dip" recession and add to the pressure on Mr Osborne to change his economic strategy.

Mr Blanchard warned that the IMF was clear the world was "not out of the woods yet".

"We've never been passionate about austerity. From the beginning we have always emphasised that fiscal consolidation should be slow and steady.

"We said that 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 in March and we think that would be a good time to take stock and make some adjustments," he said.

He added: "We think that slower fiscal consolidation in some form may well be appropriate."

Deputy Prime Minister Nick Clegg said the Government was already taking "sensible and pragmatic" steps to deal with the harder-than-expected recovery.

"I agree with Blanchard when he says we need to be steady and sensible and pragmatic, not dogmatic, not ideological in trying to balance the books," he told London's LBC Radio.

"And to be fair to us as a Government, I think we have been much, much more pragmatic than some of our critics (say).

"They said that we are just blindly marching along slashing things left, right and centre.

"Actually, when we realised it was going to take longer to balance the books, we said OK, the rules, the deadline we had originally set were going to be pushed into the future."

Mr Clegg pointed to the higher-than-expected leap in public sector borrowing in December, revealed in official figures.

"If tax receipts go down and welfare payments go up, we are not going to just keep chasing our tail. We are going to allow borrowing to go up to cover those costs in a sensible and pragmatic way."

But shadow chancellor Ed Balls said: "David Cameron and George Osborne must finally heed the IMF's advice.

"They have repeatedly warned that a change of course would be needed in Britain if the economy turns out worse than expected.

"After two-and-a-half years of flatlining and a double-dip recession, the IMF is now clearly losing patience.

"For many months we have called for urgent action to kick-start our economy.

"The IMF has said such a plan B should include policies Labour has long called for - including temporary tax cuts, such as a VAT reduction, and bringing forward long-term infrastructure investment.

"The longer the Government clings on to its failing plan, the more long-term damage they will do to our economy.

"David Cameron and George Osborne must now put political pride aside and put the national economic interest first."