7 Jun 2011

UK cuts to deficit backed by IMF

10:16 am on 7 June 2011

The International Monetary Fund has endorsed the British government's programme to cut the deficit.

The agency said weak economic growth and rising inflation had been "unexpected", but that they were "largely temporary".

But its annual report also warned that there were still "significant risks" which may need a policy response.

The IMF predicts the UK economy would grow 1.5% in 2011, down from its forecast of 1.7% in April and 2% in November 2010. But it maintained its medium-term forecast at 2.5%.

The IMF also pointed to rising commodity prices and an increase in VAT as temporary problems for inflation.

It predicted that inflation would remain above 4% for most of the year, but would return to its target rate of 2% by the end of 2012 as oil and food prices settle down.

At a news conference, IMF deputy director John Lipsky warned that, ''uncertainty around the central forecasts remains high'', as it does in many other economies.

He added that ''the unemployment rate remains unacceptably high but it seems to have stabilised''.

The IMF also said that continuing low interest rates from the Bank of England would help companies and individuals repay their debts as well as boosting investment and exports.