LONDON - Britain should defer spending cuts planned for next year if growth turns out to be much weaker than forecast, the International Monetary Fund said on Tuesday.
The IMF said Britain's deficit-cutting plans were already behind forecast, but that finance minister George Osborne should be prepared to slow them further in the short term if other measures failed to boost demand.
The IMF's budget assessment came hours after it sharply downgraded Britain's growth outlook, predicting the economy would shrink 0.4 percent this year, before growing by a tepid 1.1 percent in 2013.
The reports will make uncomfortable reading for Osborne, who will unveil updated growth and budget forecasts on Dec. 5. Many economists already believe he will struggle to meet his goals of eliminating the structural budget deficit within five years, and putting net debt as a share of GDP on a downward path by 2015.
The IMF said a first line of defense against weaker growth would be for the Bank of England to loosen monetary policy and for the government to allow total unemployment benefit payments to rise if joblessness increased.
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