IMF warns Osborne as growth falters

The body cut this year’s forecast growth from 1 to 0.7 per cent and 2014’s projection from 1.9 to 1.5 per cent as it noted the recovery was “progressing slowly”.

The IMF suggested Chancellor George Osborne should consider changing his austerity plans amid “lacklustre” private demand.

The World Economic Outlook (WEO) report also suggested further action on monetary policy, potentially including the purchase of private sector assets.

The report said: “In the UK, the recovery is progressing slowly, notably in the context of weak external demand and ongoing fiscal consolidation.”

It noted that rebalancing from the public to private sector was “being held back by deleveraging, tight credit conditions and economic uncertainty”.

Hopes for an export-led recovery were also being hit as “declining productivity growth and high unit labour costs are holding back much needed external rebalancing”.

In its suggested policy responses, the report said: “In the UK, other forms of monetary easing could be considered, including the purchase of private sector assets and greater transparency on the likely future monetary stance.

“Greater near-term flexibility in the path of fiscal adjustment should be considered in the light of lacklustre private demand.”

The IMF’s projection for 2013 is more optimistic than the 0.6 per cent growth forecast by the Office for Budget Responsibility (OBR).

The WEO forecast a -0.3 per cent slump in the eurozone as a whole for 2013, with Germany expected to grow 0.6 per cent but France set to contract -0.1 per cent. It predicted growth in the US of 1.9 per cent and 8.0 per cent in China. The world output growth forecast has been cut from 3.5 to 3.3 per cent.