THE IMF’s chief economist has suggested that Britain tone down its austerity plans to help the struggling economy.
Olivier Blanchard said the Budget in March would be a good time for Chancellor George Osborne to “take stock” of his plan A.
Interviewed at the World Economic Forum in Davos, M Blanchard’s comments came as the body trimmed its forecasts for the UK and global growth.
The British economy is now expected to expand by one rather than 1.1 per cent this year, and 1.9 rather than 2.2 per cent next year.
There are fears that official GDP figures for the final quarter of last year, due to be published today, could show a contraction, adding to pressure on Mr Osborne to ease his approach.
M Blanchard said it was clear the world was “not out of the woods yet”.
“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 said that if things look bad at the beginning of 2013 - which they do - then there should be a reassessment of fiscal policy.
“We still believe that. You have a budget coming in March and we think that would be a good time to take stock and make some adjustments.”
He added: “We think that slower fiscal consolidation in some form may well be appropriate.”
Deputy Prime Minister Nick Clegg said the Government was already taking “sensible and pragmatic” steps to deal with the harder-than-expected recovery.
“I agree with Blanchard when he says we need to be steady and sensible and pragmatic, not dogmatic not ideological, in trying to balance the books,” he told London’s LBC Radio.
“And to be fair to us as a Government, I think we have been much, much more pragmatic than some of our critics (say).
“They said that we are just blindly marching along slashing things left, right and centre.
“Actually, when we realised it was going to take longer to balance the books, we said OK, the rules, the deadline we had originally set were going to be pushed into the future.”
Mr Clegg pointed to the higher-than-expected leap in public sector borrowing in December, revealed in official figures.
“If tax receipts go down and welfare payments go up, we are not going to just keep chasing our tail. We are going to allow borrowing to go up to cover those costs in a sensible and pragmatic way.”
Referring to previous warnings from the IMF, Shadow Chancellor Ed Balls said it was time for the coalition leaders to heed its advice.
“They have repeatedly warned that a change of course would be needed in Britain if the economy turns out worse than expected,” he said.
“After two-and-a-half years of flatlining and a double-dip recession, the IMF is now clearly losing patience.”