IMF warns households face losing £1,500 a year for five years


British households will lose £1,500 a year for the next five years as a consequence of the Government's austerity drive, the International Monetary Fund (IMF) warned yesterday.

In an assessment of the state of the UK economy, the IMF said families would have £35bn less disposable income due to the increase in tax and cut in benefits being undertaken as part of the Government's attempts to cut the deficit. Declining house prices would also affect "tangible" wealth over the next few years.

The IMF said Britain would have a "bumpy and uneven recovery" and ministers must be ready to change economic policy if growth and inflation do not develop as they hope. The warning comes a week after it was revealed that growth in the economy for the last quarter was half of that which was originally forecast by the Office for Budget Responsibility (OBR), growing only 0.2 per cent between April and June.

The IMF gave its backing to the Government's policy of "fiscal consolidation" to cut the deficit through tax increases and spending cuts.

But the international finance body warned that the growth outlook was "subject to considerable uncertainties", and predicted a GDP increase of just 1.5 per cent this year and 2.5 per cent in 2012 – slightly below the 1.7 per cent in 2011 and 2.5 per cent for 2012 forecast by the OBR at the time of George Osborne's Budget in March. Weaker-than-expected growth might require the Government to adopt "looser macroeconomic policies" such as tax cuts to stimulate demand, while the Bank launches a fresh round of quantitative easing – effectively printing money – the IMF said.

The deputy director of the IMF's European department, Ajai Chopra, said that the most likely scenario for the UK economy is a gradual recovery, with continued "headwinds" due to the sluggish housing market, government belt-tightening and businesses and individuals paying off their debts.

But Mr Chopra said that another possible scenario could see "a prolonged period of weak growth, high unemployment, and subdued inflation".