The IMF starts to lose faith in Osborne

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IMF boss Christine Lagarde is vital for Osborne's reputation but the organisation is noticeably cooling on the UK chancellor.
IMF boss Christine Lagarde is vital for Osborne's reputation but the organisation is noticeably cooling on the UK chancellor.

Britain faced the prospect of a reduction in its credit rating today, after the IMF predicted George Osborne would break his target for deficit reduction.

In a report on UK economic performance which could prove embarrassing for the chancellor, the organisation warned Osborne would miss his target for national debt to fall as a percentage of GDP by 2015-16.

"Post-crisis repair and rebalancing of the UK economy is likely to be more prolonged than initially envisaged," the report warns.

"Confidence is weak and uncertainty is high.


"Looking ahead, the economy is expected to grow modestly, but with current policy settings the pace will be insufficient to absorb significant slack in the economy, raising the risk of a permanent loss of productive capacity."

The report will increase the pressure on the chancellor to provide a Plan B to his deficit reduction strategy and reduce the pace of structural fiscal tightening.

But the most damaging aspect of the report concerns the chancellor's target of 2015-16 for the national debt to be falling as a percentage of GDP – one of the chancellor's golden rules when he came to power.

Government debt is now predicted to rise from 78.8% of GDP in 2014-15 to 79.9% in 2015-16.

"This is a very serious warning to the chancellor that urgent action to boost jobs and growth is needed," shadow chancellor Ed Balls commented.

"How much longer must we wait, and how much more damage must be done, before George Osborne finally does the most important u-turn of all?"

The failure to hit the rule Osborne set could lead credit ratings agencies to give up their faith in the chancellor, triggering a rise in interest rates on the debt and robbing the government of its main argument for its economic strategy.

 

 

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