Prime Minister David Cameron rules out a new economic strategy following the IMF’s decision to downgrade its growth forecast for Britain.
The International Monetary Fund said it expected the British economy to shrink by 0.4 per cent this year, having predicted growth of 0.2 per cent in July, and argued that government spending cuts should be deferred if output proved to be much weaker than forecast.
It expects the economy, which is in recession, to grow by 1.1 per cent in 2013, down from its previous forecast of 1.4 per cent.
The German, French and Irish economies are expected to grow this year, albeit slowly, but output in Greece, Italy and Spain is falling.
Mr Cameron, who makes his keynote speech at the Conservative conference on Wednesday, dismissed calls to change course to boost growth and adopt a “plan B” for the economy, saying the government was determined that “plan A” should be “firing on all cylinders”.
He said: “The IMF also say we shouldn’t abandon our plans of making reductions in government spending and also, regrettably in some cases, putting up some taxes to get on top of our debt and our deficit. So it’s not plan B that we need.”
This was the message Chancellor George Osborne delivered to delegates at the Conservative conference on Monday.
But shadow chancellor Ed Balls said: “Coming just hours after George Osborne complacently insisted he would cling on to his failing plan, these downgraded IMF forecasts are another damaging blow to the government’s economic credibility.
“Twelve months ago, the IMF forecast growth of 1.6 per cent in 2012 and said a plan B would be needed if growth were to be lower than expected.”
The IMF said countries where growth was under-shooting projections “should smooth their planned adjustment over 2013 and beyond”. It added: This includes… the United Kingdom”.
The IMF also downgraded its growth forecast for the global economy in 2012 from 3.5 to 3.3 per cent and from 3.9 to 3.6 per cent in 2013.
In July, it predicted the eurozone economy would shrink by 0.3 per cent in 2012; it now expects it to contract by 0.4 per cent.
It expects Greece, Italy and Spain to shrink by 6 per cent, 2.3 per cent and 1.5 per cent respectively in 2012.
But the IMF predicts the German, Irish and French economies will expand by 0.9 per cent, 0.4 per cent and 0.1 per cent respectively.
It warned that the Spanish and Italian economies could shrink by as much as 7 per cent next year if action was not taken to deal with the eurozone debt crisis, with even Germany at risk of contraction.