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Exchequer Chancellor Osborne Braced for IMF Verdict

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An Article IV consultation for a reserve-currency sovereign that might actually matter:

Rachel Cooper:

Osborne braced for IMF verdict on UK economy: George Osborne is braced for the International Monetary Fund's verdict on Britain's economic prospects amid speculation it will urge him to change course. On Wednesday, the IMF presents its annual healthcheck on the UK and the international body is expected to suggest that deficit reduction should be slowed amid anaemic growth. The “Article IV” report is expected to recommend Mr Osborne change his plans and borrow more to invest in infrastructure or cut taxes. Previously, the IMF was among the strongest backers of the Chancellor's economic strategy, but has gradually changed its tone in response to dwindling growth forecasts.

Last month, the IMF cut its UK growth forecast for this year from 1pc to 0.7pc. While the organisation's head, Christine Lagarde, has insisted she still supports the Government's policy, she has said that "should growth be particularly low… there should be consideration to adjusting by way of slowing the pace". IMF chief economist Olivier Blanchard has been more direct in expressing doubts about the continuing wisdom of the austerity policy, suggesting that the Chancellor was "playing with fire" by persisting with austerity. He said last month that the time had come for the Chancellor to adjust his £130bn package of tax rises and spending cuts, claiming that the country had the “fiscal space” to afford more stimulus.

David Lipton, the first deputy managing director who will be presenting the report on Wednesday, also intervened, saying: “Our view is the pace of consolidation ought to be reconsidered.” Labour will no doubt claim today's proposals are an endorsement of its strategy. If the IMF were to recommend a putting the brakes on austerity, such a conclusion would be seized on by Labour's Ed Balls, who has consistently condemned the coalition for going "too far, too fast"….

Mark Carney, the incoming Bank of England Governor, has warned that Europe could face a decade of stagnation unless it takes the kind of bold measures seen in Japan. In words that will underline his status as a monetary activist and fuel speculation that he will try to relaunch quantitative easing (QE) when he arrives in the UK, Mr Carney applauded Japan’s “bold policy experiment” to boost dramatically its own QE programme. He said: “Europe can draw lessons from Japan on the dangers of half measures... Europe remains in recession. Deep challenges persist in its financial system. Without sustained and significant reforms, a decade of stagnation threatens.”