Chancellor George Osborne is set to do battle with the International Monetary Fund next month over the credibility of his austerity plans to cut the UK’s fiscal deficit.
The IMF, which will arrive in London next month to make their annual assessment of the UK economy, this week expressed renewed concern over the health of UK economy with IMF chief economist Olivier Blanchard urging the UK to rethink its austerity policy in the face of weak growth.
Furthermore, IMF chief Christine Lagarde this week said the UK’s growth figures are “not particularly good” but she refused to be drawn on whether the UK should review its austerity policy.
However, the Financial Times reports Osborne will “aggressively” defend his policies and is prepared to ignore any IMF recommendations if necessary.
An aide close to Osborne told the Financial Times: “If they recommend we loosen fiscal policy, we won’t do it. We think they are wrong.”
The Chancellor is said to think the IMF’s criticism is unfair as the UK’s 1 per cent fiscal contraction this year is in line with the fund’s general recommendations for advanced economies. He reportedly feels key officials want to criticise his “Plan A” as part of a proxy attack on US Republicans trying to force through fiscal tightening.
There has been speculation that Osborne may have an ally in the new Bank of England governor, former Bank of Canada governor Mark Carney, who will take up his role with the UK central bank in July.
Speaking at a conference in Washington, Carney appeared to back Osborne’s views on austerity, although he would not be drawn on the state of the UK economy.
In comments reported by the the BBC, Carney said: “[Central banks] can provide the conditions for growth… but they cannot deliver the long-term growth. That needs to come from true fiscal adjustment and fundamental structural reforms.”