International Monetary Fund officials arrive in London Wednesday for their annual health check of Britain's economy as the government faces a fresh warning its austerity drive is causing a "lost decade of growth".
Echoing the IMF's recent warning that George Osborne, the chancellor, needed to ease up on austerity cuts in the face of a stagnant economy, the Trades Union Congress (TUC) has argued that the UK is being left behind in the global recovery.
It said the UK is experiencing a slower economic recovery than 23 of the 33 advanced economies monitored by the IMF. The TUC report, issued to coincide with the arrival of the IMF mission, also claims the vast majority of eurozone countries are performing better.
TUC general secretary Frances O'Grady said: "We truly are experiencing a lost decade for growth. While other countries are already seeing a rise in economic output, the UK won't return to its pre-crash level for another four years.
"The chancellor's commitment to self-defeating austerity has prolonged people's suffering and put the brakes on our economic recovery – so much so that escaping a triple-recession is considered by some to be a cause for celebration. Even George Osborne's favourite economic institution, the IMF, is calling on him to change course."
Looking at income per head, the TUC warned the UK would not return to its pre-crash level until 2017. By contrast, income per head in Germany and the US would be more than 10% higher a decade on from the financial crisis.
The TUC said the figures, based on the IMF's latest GDP forecasts, also revealed how the UK is emerging from recession at a slower rate than at any time in recent history. The report says: "In 1985, UK income per head was 6% higher than it was before the 1980 crash. In 1995, UK income per head was 7% higher than it was before the 1990 recession. UK income per head is today still 6% below its 2008 level."
Over the next two weeks IMF officials will be gathering information on the UK's economic prospects from the Treasury, Bank of England, private sector economists, trade union officials and the government's independent forecaster, the Office for Budget Responsibility. The IMF deputy managing director, David Lipton, is then expected to hold a news conference on or around 22 May at the end of the discussions.
IMF officials caused embarrassment for Osborne last month when, alarmed at the flatlining of the British economy in 2011 and 2012, they urged him to do more to boost growth and to rethink plans to cut the structural budget deficit by 1% of national income in 2013-14.
The Washington-based organisation was initially a strong supporter of the coalition's approach to tackling the UK's record peacetime budget deficit. But its chief economist, Olivier Blanchard, singled out the UK as a country that had the scope to ease fiscal policy to boost growth. Osborne was particularly irritated by Blanchard's comment that the UK was "playing with fire" by refusing to change tack.
Osborne, however, will stand firm at meetings with the IMF delegation. Treasury officials intend to show that any change to the strategy they have followed for the last three years would damage the government's credibility in the financial markets and the subsequent increase in long-term interest rates would outweigh any benefits from cutting taxes or increasing spending.
The Treasury will say that the economy is gradually on the mend and that the IMF's anxiety about the weakness of growth has already been addressed in recent policy initiatives. They will also say that the sluggishness of the economy in 2012 was a result of the drop in exports to the crisis-hit eurozone, rather than weak consumer spending.
The TUC argues that many eurozone economies, including France, Germany, Ireland and the Netherlands, are recovering faster in GDP per head terms and so Osborne "cannot blame Europe for the UK's economic woes". It wants the chancellor to ease off on austerity and focus more on jobs and spurs to growth and confidence such as an extensive house building programme.
"He should start learning from countries like the US whose ambitious programme of investment in jobs is helping to turn its economy around," said O'Grady.
A Treasury spokesperson said: "This is an own goal by Labour's paymasters. This analysis starts in 2008 and so includes the biggest recession in modern history – which happened under Labour. Clearing up the mess we inherited won't happen overnight."
Chris Leslie, shadow financial secretary to the Treasury, said: "George Osborne should not arrogantly dismiss the advice of the IMF team flying into London this week. It is time the chancellor listened to their warnings that his failing economic policies are playing with fire and that Britain now needs a Plan B for jobs and growth."
The IMF cut its forecast for UK growth in both 2013 and 2014 last month. Its publication – the half-yearly World Economic Outlook – said GDP would rise by 0 .7% this year and by 1.5% in 2014 – in both cases a cut of 0.3 points from its last set of predictions in January.
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