The British government should stick to its guns and continue its deficit-reduction strategy despite weaker-than-anticipated economic growth, the International Monetary Fund said Monday.
Though the IMF was more cautious about the British economy than it was at the time of its last review last September, it effectively endorsed the government's strategy to get a grip on the public finances, which had been blown off course during the global financial crisis.
It said sorting out the public finances "remains essential to achieving a more sustainable budgetary position."
However, the IMF said the government will have to be flexible in its strategy if "significant" risks to inflation, growth and unemployment materialize.
"If they materialize, the policy response will depend on the nature of the shock," the IMF said.
At present, the IMF said unexpected low growth and high inflation rates are largely due to temporary factors.
The IMF report chimed with Treasury chief George Osborne's statement earlier Monday that he had no plan to change course, though he also stressed that there was scope for flexibility if required.
"My plan provides flexibility but also stability and confidence," Mr. Osborne said in an interview with British Broadcasting Corp. radio. "It is flexible because it was very specifically designed to be cyclical."
The IMF report indicated that the annual rate of consumer price inflation is likely to stay above 4 per cent, double the official target, for the rest of the year, and not fall back to 2 per cent until late next year.
Though Britain's economy recorded no growth over the previous two quarters, the IMF said a recovery of private investment was likely to support annual growth of 1.5 per cent this year, increasing to 2.5 per cent over the medium term.
That was less optimistic than the IMF team reported in September, when it expected real GDP growth of 2 per cent this year. It had also forecast that inflation would fall back to 2 per cent by early 2012