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Osborne prepared to “aggressively” defend his policies with IMF

Plan A criticism anticipated.

The British Chancellor of Exchequer George Osborne is all set to aggressively defend his policies with an IMF team that will reach London next month to make an annual assessment of the UK economy, reported the Financial Times citing people close to Osborne.

In addition, the chancellor is also prepared to challenge the team’s recommendations if necessary.

Osborne, however, fears that the team will offer a propaganda tool to the opposition Labour party and formally request him to liberalise his fiscal plans. The chancellor believes that key IMF officials want to criticise his Plan A.

As part of its twice-yearly World Economic Outlook, the IMF said that Osborne should consider greater flexibility in his deficit reduction.

The chancellor believes that Keynesian IMF officials Olivier Blanchard and David Lipton are winning the internal argument at the IMF.

IMF economists admit they may need to watch out for poisoned umbrellas for their so-called Article IV mission to London. One aide to Osborne told FT: “If they recommend we loosen fiscal policy, we won’t do it. We think they are wrong.”

Osborne believes that Britain’s 1 per cent fiscal contraction in 2013 is in line with IMF’s general recommendations for advanced economies. He argues that the UK’s 2013 fiscal squeeze will be less harsh than that being implemented in the US.

Shadow chancellor Ed Balls said: “Next week’s growth figures will need to decisively show that a strong and sustained recovery is finally underway or the chancellor will be in real trouble.”

Mark Carney, the incoming governor of the Bank of England, made it clear he did not believe fiscal austerity was a major constraint on the bank’s ability to stabilise the economy.

Carney said that central banks could not deliver long-term growth. “That needs to come from true fiscal adjustment and fundamental structural reforms.” He added: “Central banks take fiscal policy as given and Treasuries take monetary policy as given – that’s the separation. I’m not going to wade in [on fiscal policy] positively or negatively ... except in the most extreme circumstances when growth threatens financial stability.”