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IMF's Olivier Blanchard: Time for UK to consider Plan B IMF's Olivier Blanchard: Time for UK to consider Plan B
(35 minutes later)
The IMF chief economist has told the BBC that Chancellor George Osborne should consider toning down austerity in his March budget. The IMF chief economist has told the BBC that Chancellor George Osborne should consider slowing down austerity measures in his March budget.
"We think this would be a good time to take stock," said Olivier Blanchard, speaking to Radio 4's Today programme."We think this would be a good time to take stock," said Olivier Blanchard, speaking to Radio 4's Today programme.
He also said the global economy was "not out of the woods yet".He also said the global economy was "not out of the woods yet".
In October, Mr Blanchard claimed in an IMF report that austerity had hurt wealthy countries such as the UK far more than most analysts had expected.In October, Mr Blanchard claimed in an IMF report that austerity had hurt wealthy countries such as the UK far more than most analysts had expected.
His analysis showed that the impact of spending cuts and tax rises on economic growth had been 2-3 times greater in the lacklustre economic conditions since 2008, than had been the case in the previous three decades. His comments come the day after the IMF cut its 2013 forecast for UK economic growth to 1% from the 1.1% predicted in October, and will put pressure on the chancellor as he prepares to deliver a speech at Davos later on Thursday.
Mr Osborne is likely to come under further pressure to change economic policy on Friday, when official figures are expected to show that the UK economy contracted again at the end of 2012, after only three months of expansion.
And Monday's figures showing a slight year-on-year increase in public sector net borrowing have fuelled fears that the UK could lose its coveted AAA credit rating, thereby potentially increasing the government's cost of borrowing.
Lacklustre
Mr Blanchard's analysis showed that the impact of spending cuts and tax rises on economic growth had been 2-3 times greater in the lacklustre economic conditions since 2008, than had been the case in the previous three decades.
However, Mr Blanchard told the BBC that the Fund had recommended from the beginning that spending cuts should not be too drastic.However, Mr Blanchard told the BBC that the Fund had recommended from the beginning that spending cuts should not be too drastic.
"We've never been passionate about austerity. From the beginning we have always emphasised that fiscal consolidation should be slow and steady," he said."We've never been passionate about austerity. From the beginning we have always emphasised that fiscal consolidation should be slow and steady," he said.
Although he admitted that some countries, such as Spain, had little choice about pushing ahead more quickly because of the pressure they had come under from financial markets.Although he admitted that some countries, such as Spain, had little choice about pushing ahead more quickly because of the pressure they had come under from financial markets.
He also said that the Fund's advice to the UK had not fundamentally changed.He also said that the Fund's advice to the UK had not fundamentally changed.
"We said that if things look bad at the beginning of 2013 - which they do - then there should be a reassessment of fiscal policy," he said of George Osborne's budget plans."We said that if things look bad at the beginning of 2013 - which they do - then there should be a reassessment of fiscal policy," he said of George Osborne's budget plans.
On the question of David Cameron's promise to offer a referendum on whether to stay in the EU after the next general election, he said "there are clearly enormous advantages" to being in the EU.On the question of David Cameron's promise to offer a referendum on whether to stay in the EU after the next general election, he said "there are clearly enormous advantages" to being in the EU.
But he added: "There are some costs, and [the British public] have to assess".But he added: "There are some costs, and [the British public] have to assess".