Britain must prioritise "growth-enhancing" public expenditure in order to support the weak economy, the European Commission said yesterday.
The Commission said that it expects the UK economy to grow by 0.5 per cent in 2012, less than the 0.8 forecast by the Office for Budget Responsibility. It added that, due to this lower growth, the Government will not reduce its budget deficit below 3 per cent by 2014-15.
The IMF has recommended that the Government should be prepared to slow down its deficit reduction schedule – effectively adopting an economic Plan B – if growth does not pick up in due course. But the Commission insisted yesterday that the UK should "fully implement the budgetary strategy for the financial year 2012-13 and reinforce the budgetary strategy for 2013-14 and beyond".
A Treasury spokesman said that the Commission was backing the Government's course. But Rachel Reeves, Labour's Shadow Chief Secretary to the Treasury, said: "This is just the latest international organisation to warn that the Conservative-led Government urgently needs a plan for jobs and growth."
Other recommendations from the Commission were for the Government to increase the housing supply and the flow of credit to small businesses.
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