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20.07.12

Economic recovery ‘has stalled’ – IMF

The Government must act quickly to kick-start the economy with a boost to spending, the International Monetary Fund (IMF) has warned.

The new report suggests theUKmust increase investment to avoid a long depression and avoid the worst effects of the euro crisis and highlights that the current measures have led to a “stalled” economy.

It recommends more monetary easing by the Bank of England and for the Chancellor to consider temporary tax cuts if the economy remains weak. Further investment could be funded through property tax reform, it adds.

Last month retail spending figures only increased by 0.1%, manufacturing and construction have contracted and the services sector has again failed to grow.

The report states: “Recovery has stalled. Post-crisis repair and rebalancing of theUKeconomy is likely to be more prolonged than initially envisaged. Confidence is weak and uncertainty is high.

“Fiscal adjustment for FY13/14 would need to be scaled back if growth does not build momentum by early 2013. Current plans envisage structural adjustment accelerating from 0.5% of GDP in FY12/13 to nearly 1.5% of GDP in FY13/14.

“Such an acceleration may be difficult for the economy to handle if it remains very weak. The planned pace of fiscal tightening may need to ease before FY13/14 if the outlook deteriorates sharply before then.”

Shadow chancellor Ed Balls said: “This is a very serious warning to the chancellor that urgent action to boost jobs and growth is needed. With Britain now one of just two G20 countries in a double-dip recession and long-term unemployment rising, how much worse do things have to get before the chancellor finally changes course?”

But the Treasury said: “Today’s report is just the detailed version of the IMF's assessment of theUKeconomy made in May. The IMF have repeated their advice that Britain’s fiscal plans are appropriate, that we are right to support the economy through monetary and credit easing as well as government guarantees for infrastructure, and that the uncertainty and instability in the eurozone is the ‘overarching risk’ to the British economy.”

View the report here: www.imf.org/external/pubs/ft/scr/2012/cr12190.pdf

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