IMF backs Osborne's cuts strategy
Chancellor George Osborne has received a boost after the International Monetary Fund (IMF) said now is not the time to ease up on his deficit-reducing plans.
The IMF said that there had been "unexpected" weaknesses in the UK economy over the past few months but judged these setbacks as temporary.
The global financial organisation downgraded its GDP growth forecast for 2011 from 2% to 1.5%, but maintained its 2.5% estimate for the medium term.
Signs of stalling growth in the UK over recent months have fuelled demands for the Government to show it has a "Plan B" rather than pushing ahead with public spending cuts.
However, the IMF said the Government programme of spending cuts and tax rises to eliminate the UK's structural deficit "remained essential".
In a highly-anticipated statement, the IMF backed the Government's approach to tackling the deficits, saying: "Aided by the implementation of a wide-ranging policy programme, the post-crisis repair of the UK economy is under way.
"However, the weakness in economic growth and rise in inflation over the last several months was unexpected. This raises the question whether it is time to adjust macro-economic policies. The answer is no, as the deviations are largely temporary.
"Strong fiscal consolidation is under way and remains essential to achieve more sustainable budgetary position, thus reducing fiscal risks."
A soft housing market, fiscal consolidation and the process of repairing the UK banks will continue to weigh on growth, the IMF said. But private investment and stronger net trade - when exports outweigh imports - should help buoy the overall economic recovery.
Inflation is likely to remain above 4% for the rest of 2011, the IMF said, but will return to the Government's 2% target at the end of 2012. The organisation also backed the Bank of England's current monetary policy - that is record-low interest rates of 0.5% and £200 billion of quantitative easing. However, the IMF said if growth resumes as expected in the coming quarters, the case for lifting interest rates would increase - but warned the changes should be gradual.