British Chancellor George Osborne today insisted the coalition’s deficit reduction plans were flexible enough to deal with the deteriorating economic situation.
The chancellor defended his approach after IMF head Christine Lagarde said the UK government’s stance remained “appropriate”.
However, Ms Lagarde also delivered a stark warning that policymakers needed to be ready to change course if conditions worsened further.
“As (Ms Lagarde) says, the UK’s strong fiscal consolidation is essential to restore debt sustainability given the UK’s very large structural deficit and large financial sector relative to GDP,” Mr Osborne said.
“That is why Christine Lagarde says our policy stance remains appropriate.
“But I agree with her that policy makers must remain alert to risks.
“That is why the automatic stabilisers and the ability of monetary policy to respond are key parts of the flexibility built in to our plan.”