IMF calls on Clarke to bring down deficit

The Chancellor of the Exchequer needs to take "corrective measures" in November's Budget to get the Government's finances moving back towards balance by the end of the century, the International Monetary Fund warned yesterday.

The IMF, the world's financial policeman, predicts that the UK will be one of only five EU countries not to meet the Maastricht Treaty requirement of a government budget deficit below 3 per cent of GDP in 1997. France and German will scrape under the wire, but it expects the UK, along with Greece, Italy, Portugal and Spain, to miss the target.

Michael Mussa, the IMF's director of research, said: "The timetable for moving towards budget balance has slipped. It would desirable to get it back on track."

Mr Mussa was careful to say Britain's public finances were not in such a weak state that dramatic tax increases or reductions in spending were needed. But he said: "It means a modest correction to get back on the desirable path."

The IMF's latest World Economic Outlook said it was essential for European countries to continue to make progress on cutting their budget deficits. Flemming Larsen, deputy head of research, said the continental countries must also focus on deregulating their labour markets.

"Without any significant further progress on structural reform, we would not expect European unemployment to be much below 8.5 per cent by the year 2000," he said.

Although admitting the danger that the Maastricht timetable could slow growth in Europe, he said there was no alternative. "Overall, consolidation has been associated with somewhat weaker recovery than might have otherwise been the case," he said.

If growth in Europe continued to be weaker than expected the IMF would become concerned that the Maastricht process had created a vicious circle with efforts to cut budget deficits reducing growth, which in turn increased the budget shortfall.

The fund added that there was some scope for lower interest rates in continental Europe where this would not threaten the achievement of low inflation.

Mr Larsen said: "It is too soon to conclude that the recent round of interest rates has fully run its course."

The IMF forecasts for the world economy are essentially optimistic. The slight pick-up it expects in industrial country growth is unlikely to bring higher inflation.

It expects growth in the industrial countries to average 2.3 per cent this year and 2.5 per cent next. It has revised up its forecast for the UK next year to 3 per cent from the earlier prediction of 2.7 per cent.

The US growth forecast has also been revised up slightly to 2.4 per cent in 1996 and 2.3 per cent next year. Japan is likely to be one of the fastest growing industrial economies, expanding 3.5 per cent this year and 2.7 next.

Growth in the developing countries was expected to moderate slightly next year, especially in Asia.

The IMF yesterday called for higher interest rates in both US and the UK, the day after the Federal Reserve made its surprise decision not to increase US rates. Mr Mussa said: "The prudent course would be to have some slight firming of monetary conditions."

Mr Mussa said this was not intended as a judgement on the Fed's decision, and the need for higher rates was not urgent. But according the fund's World Economic Outlook "margins of unused resources in the US economy appeared to be virtually exhausted and the unemployment rate has fallen to a level that, in the past, has been associated with rising wage and price pressures".

It said there was room for further reduction in British unemployment without undue inflationary pressure, but the economy would grow at a rate above its potential next year.

Mr Mussa said interest rates would need to move modestly higher. "This is not a crisis situation but it a question of prudence," he said.

CBI seeks cuts, page 21

Comment, page 21

Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
sportDidier Drogba returns to Chelsea on one-year deal
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
BBC broadcaster and presenter Evan Davis, who will be taking over from Jeremy Paxman on Newsnight
peopleForget Paxman - what will Evan Davis be like on Newsnight?
Life and Style
fashionCustomer complained about the visibly protruding ribs
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

The BBC’s wolf in sheep’s clothing

What will Evan Davis be like on Newsnight?
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

Inside a church for Born Again Christians

As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

Olivier Rousteing is revitalising the house of Balmain

Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
Cancer, cardiac arrest, HIV and homelessness - and he's only 39

Incredible survival story of David Tovey

Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little