IMF slashes UK growth forecasts
The UK's growth forecasts for this year and next have been slashed by the International Monetary Fund as it warned the private sector was being hampered by a lack of credit and economic uncertainty.
The body cut this year's forecast growth from 1% to 0.7% and 2014's projection from 1.9% to 1.5% as it noted the recovery was "progressing slowly".
The IMF suggested Chancellor George Osborne should consider changing his austerity plans in the light of "lacklustre" private demand. The World Economic Outlook report also suggested further action on monetary policy, potentially including the purchase of private sector assets.
The report said: "In the United Kingdom, the recovery is progressing slowly, notably in the context of weak external demand and ongoing fiscal consolidation."
It noted that rebalancing from the public to private sector was "being held back by deleveraging, tight credit conditions and economic uncertainty". Hopes for an export-led recovery were also being hit as "declining productivity growth and high unit labour costs are holding back much needed external rebalancing".
In its suggested policy responses, the report said: "In the United Kingdom, other forms of monetary easing could be considered, including the purchase of private sector assets and greater transparency on the likely future monetary stance. Greater near-term flexibility in the path of fiscal adjustment should be considered in the light of lacklustre private demand."
The IMF's projection for 2013 is more optimistic than the forecast of 0.6% growth from the Office for Budget Responsibility (OBR).
In his budget last month Mr Osborne said the OBR had halved its forecast for this year from 1.2% and had also cut its prediction for next year to 1.8%.
The IMF's forecasts for the UK come as the body warned "the road to recovery in the advanced economies will remain bumpy". The report forecast a -0.3% slump in the eurozone as a whole for 2013, with the single currency's economic powerhouse Germany expected to grow 0.6% but France set to experience a -0.1% contraction.
Shadow chancellor Ed Balls said: "It was a serious mistake for George Osborne to totally ignore the IMF's calls for a reassessment of fiscal policy in the Budget. They are right to step up their warnings and insist that a change of economic policy is considered right now."