IMF calls for Plan B on economy

THE GOVERNMENT should prepare a Plan B, featuring temporary tax cuts and increased spending on infrastructure, to support the UK economy in the case of a collapse in the eurozone or the failure of recovery to take off, the International Monetary Fund (IMF) said yesterday.

The fund said that further easing of monetary policy, by printing money or even cutting the 0.5% base interest rate, was “required” now to inject some vigour into a flat economy and it said the Government should consider an immediate increase in spending on infrastructure to boost growth and employment.

But it warned of the “large” risk of an escalation in the eurozone crisis, which would deliver a “substantial contractionary shock” to the UK economy.

While reducing Britain’s deficit over the medium term remains essential, a shock in the eurozone — such as the exit of Greece from the single currency — would force the Government to consider delaying plans to balance the books beyond the current target of 2017 and implement short-term measures to shore up growth, said the IMF in an annual report on the state of the UK economy.

“If the economy turns out to be significantly weaker than forecast, fiscal easing should be considered,” said IMF managing director Christine Lagarde. “Measures should be focused on supporting growth and employment.”

Yesterday’s report came as the Organisation for Economic Cooperation and Development warned the eurozone was close to “a severe recession” which would have knock-on effects on the rest of the world.

Chancellor George Osborne warned that the eurozone was reaching “a critical point” and confirmed that Britain was preparing to deal with the consequences of a failure in the single currency.

Ms Lagarde did acknowledge the “substantial progress” Britain has made towards achieving a more sustainable budget thanks to the Government’s austerity measures and the Bank of England’s “nimble” use of quantitative easing and interest rate cuts.

This had given Britain a “hard-won credibility” with international markets which now allows ministers the scope to take measures to support growth, she said, but warned that the UK economy had underperformed and unemployment remained “much too high”.

The SNP’S Treasury spokesman at Westminster Stewart Hosie said: “The UK Government must listen to the IMF and deliver the Plan B that the Scottish Government has been arguing for to boost growth and employment.”

Picture: PA The International Monetary Fund managing director Christine Lagarde during a press briefing with Chancellor George Osborne in London.