IMF tells Britain: Do more to drive growth

Tue May 22, 2012 7:13am EDT
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By Sven Egenter and Fiona Shaikh

LONDON (Reuters) - Britain must do more to bolster demand and the Bank of England should purchase more assets or even cut its main interest rate - already at a record low - to prevent years of sluggish growth, the International Monetary Fund said on Tuesday.

Britain has not fully recovered from the slump caused by the 2007-2009 financial crisis, and the economy fell back into recession around the turn of the year.

"Growth is too slow and unemployment, including youth unemployment, is too high," IMF Managing Director Christine Lagarde said at a news conference. "Policies to bolster demand before low growth becomes entrenched are needed."

The IMF chief suggested the government rejig its austerity program to allow more infrastructure spending while the central bank should buy more assets, possibly also bonds from companies or mortgages, or cut rates.

The Bank of England has bought 325 billion pounds worth of government bonds with newly created money to boost the faltering economy, but halted the money printing presses this month on concerns over stubbornly high inflation.

It may have more room for additional easing, however, after data on Tuesday showed UK inflation fell to 3 percent in April, its lowest level in more than two years.

The IMF continued to back the government's austerity plan in principle, though it applauded last November's decision to prolongue the austerity period rather than cut faster.

In a separate report, the Organisation for Economic Cooperation and Development called Britain's policy mix appropriate, but it pointed out risks including a weaker global economy and higher oil prices.   Continued...