Business

IMF's verdict due on UK economy

UK Chancellor George Osborne
Image caption Mr Osborne has been keen to cite the support of the IMF and OECD in defence of his spending cuts

The International Monetary Fund (IMF) is due to deliver its verdict on the UK economy later.

In November the IMF said the UK economy was "on the mend". Since then, the economy contracted by 0.5% in the last three months of 2010 and then grew by 0.5% in the first three months of 2011.

On Sunday, a group of academics called for the government to come up with a Plan B on economic policy.

Chancellor George Osborne said the UK's fiscal plan was "credible".

"The economy is growing, jobs are being created. We would like the economy to grow further and we would like more jobs to be created," he told BBC Radio 4's Today programme.

He described the fiscal plan as "the rock on which the British economy rests at the moment".

While he did not talk about a Plan B, he said: "We have flexibility built into our plan."

'Difficult decisions'

In a letter to the Observer, the group of academics described the "breakneck deficit-reduction plan" as "self-defeating".

The academics argue that government spending cuts are hitting economic growth, which is reducing the amount that the government takes in taxes and increasing the amount it has to pay out in benefits - which increases the budget deficit.

The government has cited support for its plans from international financial organisations.

Mr Osborne said: "There are many many economists, many business organisations who create jobs in the economy, [and] many international bodies who support the difficult decisions we have taken over the last 12 months."

BBC economics editor Stephanie Flanders said that even people who were fans of Chancellor George Osborne's strategy would say things were not going as they would have liked, but things had not got to a point where they have turned on him.

She added that a year ago there were plenty of concerns within the IMF about the pace of Mr Osborne's cuts, but these were over-ruled on political grounds, and in public the organisation was very supportive.

Confidence 'knocked'

Last month, while the OECD endorsed the government's policies, its chief economist Pier Carlo Padoan told The Times newspaper that the pace of cuts would have to be slowed if economic growth figures continued to be disappointing.

But Mr Osborne said: "Angel Gurria, the secretary general of the OECD, came out later that day, because the remarks were being over-interpreted, and said the OECD backs the course the UK is taking."

Last week, Markit, which compiles the closely-watched purchasing managers' indexes (PMI), said that its surveys on manufacturing, services and construction "collectively signalled a slowing in the rate of economic growth".

Its PMI survey on manufacturing indicated that the sector grew at its weakest pace in almost two years in May.

On Sunday, the shadow chancellor, Ed Balls, said: "The disappointing figures we've had this week, particularly on manufacturing, seem to be further evidence that the economic recovery is stalling.

"The fact is that the spending review, the decision to cut further and faster than any other major economy and the VAT rise have really knocked business and consumer confidence and are putting at risk the good recovery we were starting to see a year ago."

But Mr Osborne hit back, saying: "Our plan provides credibility, stability and confidence in the British economy."

He also drew attention to a report out on Monday from the EEF manufacturing group which said manufacturers have enjoyed a sixth successive quarter of growth.

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