IMF calls for lower interest rates and tax cuts to boost UK economy

Christine Lagarde said today that if low growth and high unemployment continue the Government must act. Photo: Press Association

The IMF has just handed over its report card on the British economy.

Although it praises the government's record so far, as well as that of the Bank of England, my eyes (and, I confess every other journalist's eyes at the press conference) were drawn to some startling recommendations.

Christine Lagarde, head of the IMF, pointed out this morning that growth in the UK is too low and unemployment is too high.

If this carries on, she says, Britain will have to act, perhaps even with temporary tax cuts to boost growth. These could be a reduction in VAT or National Insurance contributions. That would be a deviation from the righteous path of austerity which Chancellor Osborne advocates.

Treasury officials were quick to emphasise that this was only the fourth recommendation from the IMF.

And indeed there are other solutions which come first: the Bank taking interest rates even lower than the 0.5 per cent they are now, a resumption of quantitative easing (the way the bank injects money into the economy), and making credit more available to companies by using the government's economic might.

But it is powerful to see a global institution like the IMF broaching an end to the strict austerity programme in Britain.

Chancellor Osborne, sitting in the audience, made no comment and took no questions although he had earlier welcomed the report's endorsement of his strategy so far.

If the IMF is right, the first volley should come from the Bank.