Oh dear. David Cameron has told the Daily Telegraph today that austerity could continue till 2020.
There is no alternative, says the PM. However, with impeccable timing, the International Monetary Fund (IMF) has published a new report on the UK economy this afternoon suggesting the "pace of structural tightening will need to slow" if the coalition's current plans for "additional monetary stimulus and strong credit easing measures" don't work.
"Recovery," says the IMF, "has stalled". The Fund goes further than it has before in signalling its support for a "plan B" and for austerity measures to be slowed down.
Here are the five money quotes from the report (which will have Ed Balls rubbing his hands with glee):
1) "Demand support is needed. More expansionary demand policies would close the output gap faster and reduce the risk of hysteresis... The planned pace of structural fiscal tightening will need to slow if the recovery fails to take off even after additional monetary stimulus and strong credit easing measures. The UK has the fiscal space to make such adjustments." (p.1)
2) "The UK economy has ample spare capacity and demand is weak. Thus, given the outlook for growth and inflation, additional macroeconomic easing is needed to close the output gap faster, reduce risks of hysteresis, and insure against the predominance of downside risks." (p.27)
3) "Policy options in this regard come with risks, including uncertainty concerning their effectiveness. However, these risks must be weighed against the risk of weak demand that leads to persistently slow growth and high unemployment, which in turn could become entrenched in the decisions of consumers and investors. A more supportive macroeconomic policy stance is hence essential." (p.27)
4) "If growth does not take off and unemployment fails to recede... the policy response should include a further slowing of fiscal consolidation. (p.39)
5) "Scaling back fiscal tightening plans should be the main policy lever if growth does not build momentum by early-2013 even after further monetary stimulus and strong credit easing measures." (p.45)
The IMF report also warns of a "permanent loss of productive capacity" (p.1) and says "the big picture on [UK] growth is one of stagnation since late-2010" (p.5).
This isn't what George Osborne will have wanted to be reading ahead of his summer break. After all, he has spent the past two years constantly, loudly, publicly invoking the IMF as a supporter of his plan A for Austerity. In case anyone needs reminding, this is what the Chancellor said as recently as May 2012: "I welcome the IMF's continuing support for the UK's deficit reduction plan".
Does George know how to take a hint?
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