The head of the International Monetary Fund has handed David Cameron a helpful pre-election gift, hailing the British economic recovery as “exactly the sort of result” she would like to see.
The prime minister warmly welcomed the remarks by the IMF’s managing director, Christine Lagarde, who said that Britain’s economic performance was providing “eloquent and convincing” leadership for the rest of the EU.
Her remarks, which were made during a round-table discussion about the global economy at the IMF in Washington, will be particularly sweet for George Osborne, who the IMF strongly criticised in 2013 over his deficit reduction plan. Its chief economist Olivier Blanchard said Osborne was “playing with fire”.
Lagarde admitted last June that the IMF’s forecasts had been wrong, after the UK economy started to recover.
Lagarde warned at the round table on Thursday of the dangers of global economic stagnation and the poor levels of growth. But she said that two economies – the UK and the US – stood out.
In a discussion also attended by the prime minister and by Blanchard, Lagarde said: “The UK is leading in a very eloquent and convincing way in the European Union.
“A few countries, only a few, are driving growth: America and the UK. From a global perspective we see growth that’s too low, too fragile.”
Speaking about prospects for 2015, Lagarde said she expected it to be a good year for the US, which is experiencing strong growth. She offered a strong endorsement for the British chancellor, adding: “And the UK, where clearly growth is improving, the deficit has been reduced, and where the unemployment is going down.
“Certainly from a global perspective this is exactly the sort of result that we would like to see … More growth, less unemployment, a growth that is more inclusive, that is better shared, and a growth that is also sustainable and more balanced.”
The prime minister said after the meeting: “I was delighted by what Christine Lagarde said and I thought it was strong testament to the fact that the British economy is recovering strongly and Britain and America are the two fastest growing of the major western economies.
“That gives us the opportunity to set the agenda on these things like trade deals and structural reforms and the other things to encourage growth in the world economy. I thought it was a very good session at the IMF.”
Lagarde’s words in Washington contrasted with her call in April 2013 for Osborne to moderate his deficit reduction plan when the British economy was struggling. She made the remarks days after Blanchard warned in a Sky News interview that Osborne had wrongly assumed that private demand would pick up the slack after he accelerated the deficit reduction plan. In famous remarks, Blanchard said: “I think you’re playing with fire when you get to very low growth rates so … if you can decrease the speed of fiscal consolidation maintaining the credibility … when growth is close to zero I think yes it’s worth considering.”
Ed Balls, the shadow chancellor, who was also in Washington on Thursday for the launch of a report on inclusive prosperity with the former US treasury secretary, Larry Summers, took issue with Lagarde’s comments.
He said: “What our report says is across all these countries across the last 15 years you have a common pattern, which is where I disagree with Christine Lagarde’s comments, which is you can have growth but living standards have been flat for most people, been stagnating.
“A short period, or even a longer period, where wages stay low but the oil price falls doesn’t get over that fundamental problem of wages not rising. The challenge is about productivity and wages. That is where the solution has got to come.”
This article was written by Nicholas Watt in Washington, for theguardian.com on Friday 16th January 2015 05.25 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010