'Crisis economy' UK: You're in as bad a state as eurozone, says new Bank chief as IMF urges Osborne to ditch austerity packageMark Carney compared the UK to basket case countries in the eurozoneThe IMF has slashed its growth forecast for the UK over next two years
23:15 GMT, 18 April 2013
06:33 GMT, 19 April 2013
Warning: Mark Carney, who takes over from Sir Mervyn King in July, compared the UK with basket case countries in the eurozone in a brutal assessment of the economic outlook
Britain was last night branded a ‘crisis economy’ by incoming Bank of England governor Mark Carney.
The Canadian, who takes over from Sir Mervyn King in July, compared the UK with basket case countries in the eurozone in a brutal assessment of the economic outlook.
Speaking on the fringes of the International Monetary Fund’s spring meetings in Washington, he said: ‘The US is breaking out of the pack of crisis economies that include the eurozone, the UK and Japan.’
It came after the IMF this week slashed its growth forecasts for the UK over the next two years and warned that George Osborne is ‘playing with fire’ by pressing ahead with his programme of tax hikes and spending cuts.
The IMF could now officially recommend that the Chancellor ditch his harsh austerity package – possibly as soon as next month – in what would be a humiliating setback for Mr Osborne.
The IMF last year warned that Britain would have to slow its package of cuts if the economy did not pick up pace.
Mr Carney’s use of the world ‘crisis’ will not have lifted Mr Osborne’s mood after Sir Mervyn recently stressed that only a ‘gentle recovery’ is under way.
The new governor also made it clear that he and the Bank of England cannot be expected to solve the UK’s economic problems alone – another warning to Mr Osborne who has placed great faith placed in his skills.
Mr Carney, who will be the highest paid central bank governor in the world with an annual income of 874,000, including a generous London housing allowance, indicated that he was prepared to take aggressive action to support the recovery when he takes over.
But he added: ‘Can central banks provide sustainable growth No. They can help with the transition, but they can’t deliver long term growth.
The new governor also made it clear that he and the Bank of England (pictured) cannot be expected to solve the UKs economic problems alone
'That needs to come through true fiscal adjustments and necessary structural reforms. Sustainable growth comes from the private sector.’
Mr Carney, the first foreigner to be put in charge of the Bank of England in its 319-year history, indicated he would interpret Britain’s inflation target of 2 per cent more flexibly – suggesting he would allow it to remain high for longer.
IMF managing director Christine Lagarde also said that central banks around the world ‘cannot be the only game in town’ when it comes to restoring economies to health.
She said governments must also tackle deficits and implement reforms ‘so there is a mix that allows central bankers to be relieved of the weight they carry on their shoulders’.
Her comments on the state of the UK economy were more measured than those of IMF chief economist Olivier Blanchard, who said this week that Britain was ‘playing with fire’ by pressing ahead with austerity.
The IMF could officially recommend that George Osborne ditches his austerity package
Asked whether she agreed with Mr Blanchard, Mrs Lagarde said: ‘We have said that should growth abate then there should be consideration to adjusting by slowing the pace.
‘The growth numbers are certainly not particularly good. So, in a sense, this is a continuation of the position. What has changed is clearly the quality of the numbers.’
Although she did not go as far as Mr Blanchard and say that austerity should be ditched, her comments suggested that the IMF’s health-check on the UK economy next month will make grim reading for the Chancellor.
Mrs Lagarde said that the inspection team, which is expected to be led by her American deputy David Lipton, would seek ‘to really go under the skin’ of the British economy.
Under the terms of its membership of the IMF, Britain must undergo a thorough inspection each year known as an Article IV review.
IMF experts will crawl over all the UK’s accounts and ask hard questions of officials at the Treasury, the Bank of England, the Office for Budget Responsibility and other bodies.
The inspection usually takes up to a month, followed by a press conference when the IMF’s advice is issued.
Any formal recommendation from the IMF that a change of course is required will be seized upon by Shadow Chancellor Ed Balls who has long argued for a Plan B.
Mrs Lagarde added: ‘I would not, and I don’t think anybody in this institution would want to pre-judge ahead of Article IV because we spend three four weeks, discussing, debating, understanding trying to get under the skin of each economy and we will for that.’