The International Monetary Fund (IMF) has stepped up pressure on Chancellor George Osborne to consider easing his austerity programme. David Lipton, the Fund's first deputy managing director, said the "pace of consolidation" should be reconsidered given the weakness of the UK economy.
It is a fresh blow for Osborne in what has been a turbulent few days. Earlier this week the IMF cut the UK's growth forecast growth from 1% to 0.7% this year and 2014's projection from 1.9% to 1.5%, noting the recovery was "progressing slowly".
That was followed by the publication of poor employment figures on Wednesday, while the UK was stripped of its prized AAA status by a second credit ratings agency on Friday. Fitch placed the UK on an AA+ rating, following Moody's downgrade of UK debt in February, saying the move reflected a "weaker economic and fiscal outlook".
In an interview with Sky News, Lipton said: "The Fund's view is clear: the UK economy has turned out to be somewhat weaker than had been foreseen, so our view is that the pace of consolidation ought to be reconsidered, and we'll want to come and have some discussions over that."
Lipton stressed it was still "very important" that the UK Government maintained fiscal consolidation as a goal. But he added: "The question now is whether the pace is right or too ambitious given the weakness of the economy. "The key to us, the bottom line to us, is that they may want to consider adjusting the pace of consolidation." He said the subject would be discussed with the UK during the "Article IV consultation" - the annual health check on the economy.
Following the IMF's World Economic Outlook report on Tuesday, which called for Osborne to consider moving to an economic Plan B in the light of "lacklustre" private demand, Labour's shadow chancellor, Ed Balls, said it was "a serious mistake for George Osborne to totally ignore the calls for a reassessment of fiscal policy in the Budget".
"They are right to step up their warnings and insist that a change of economic policy is considered right now," he said. “Our economy has flatlined for two and a half years, real wages are falling month by month and the result is £245 billion more borrowing than planned to pay for this economic failure. How much more damage needs to be done before the chancellor finally acts? These downgraded growth forecasts are yet another damaging blow to a downgraded Chancellor whose economic policies have totally failed."