IMF backs PM’s plan to end UK austerity

PHiliP Hammond has been given the green light by the international Monetary Fund to end the squeeze on public spending when he delivers his Budget later this month.

the Washington-based watchdog said the reduction in the deficit – from a record £153bn under labour in 2009-10 to £39.9bn last year – has given the Chancellor space to ease austerity measures to boost the economy.

the findings will be welcomed by the Prime Minister who used her speech at the tory Party conference last week to declare an end to austerity.

the Government has already committed an extra £20bn a year to the nHS but questions have been raised as to how it, together with higher public sector pay settlements, will be funded.

in its World economic Outlook report, the iMF argued Britain is one of the few Western nations to have re-imposed fiscal discipline since the financial crisis a decade ago. the better outlook for the public finances ‘allows for flexibility in the short term’.

Hammond has the opportunity to loosen policy especially if growth were to slow as a result of a trade war or a no-deal Brexit.

He is already thought to have between £12bn and £20bn in his back pocket as a result of careful management of Government spending and surging revenues from higher corporation tax receipts, VAt and income taxes.

the iMF gave Britain high marks for tackling the huge budget deficit left by the last labour government.

it pencilled in growth of 1.4pc this year and 1.5pc next year. And contrary to claims made by critics, Britain is not bottom of the growth league table among the richest nations, with italy and Japan growing more slowly.

the fund’s chief economist Maurice Obstfeld is gloomier about the global economy as a result of President trump’s trade dispute with China and unsettled conditions in emerging markets, from Argentina to turkey.

A big critic of Brexit, the comments in this year’s report are much more guarded on Britain’s exit from the eU. it said ‘the rise in trade barriers between the United Kingdom and the european Union would imply sizable losses for the UK economy’.

But it also notes it would be adverse for Britain’s ‘ trading partners’. the comments could be read as warnings to the likes of ireland, Germany and France not to drive too hard a bargain because it would hurt their own domestic economies.