IMF board backs Osborne but staff calls for capital investment

18th Jul 2013 16:12

Chancellor George Osborne's austerity measures may have received a vote of support from the executive board of the International Monetary Fund but staff at the IMF still believe he should bring forward capital spending measures.The majority of the IMF's executive board gave the thumbs up to his deficit reduction plans.A statement issued by the board said its directors welcomed the progress in reducing fiscal risks and ensuring the sustainability of public debt."Most directors underscored the importance of keeping fiscal consolidation on track to preserve credibility, not least in light of the persistent weakness of the fiscal position," it said.But at the same time the IMF published its full staff report following annual discussions with UK officials which showed the staff team at the IMF still felt Osborne should bring forward capital spending measures to support near-term demand. Krishna Srinivasan, IMF mission chief said: "We feel this is the kind of spending which the government will have to do anyway and should do more of it for long-term prosperity."He added: "Why wait until 2015, 2016 if you can bring a bunch of it forward, especially given how low interest rates are."He was gloomy about the outlook for the UK economy, warning it remained "a long way from a strong and sustainable improvement."He argued for a multi-pronged approach to driving the British economy onto the road to recovery.The staff report said in particular monetary policy should remain accommodative. It said: "In addition to further purchases of gilts the BoE could provide reassurance that policy rates will remain low until recovery reaches full momentum."The staff report also called for a rapid repair of bank balance sheets and an elaboration of the strategy for Lloyds Banking Group and Royal Bank of Scotland including plans to return government stakes to private ownership.TB