The International Monetary Fund has called on the British government to do more to support the country's recovery now that it has started to ease the pace of its budget austerity measures.
In its assessment of the British government's economic policies, the IMF applauded Wednesday the "flexibility" shown by Treasury chief George Osborne but said the government "should capitalize on the nascent signs of momentum to bolster growth."
The report had been hotly anticipated after the IMF last month criticized the government's focus on debt reduction at the expense of economic growth. Britain has been in recession twice since 2008 as the government reduced spending and increased taxes. These austerity measures have the effect of damping economic growth as companies and consumers have not been able to plug the gap left by the retrenching state.
But while the Washington-based international lender offered mild sanction, the tone was decidedly less heated than predicted.
The IMF suggested the government bring forward plans for spending on public sector projects and reduce corporate tax rates to encourage private sector investment. Without greater action, it said, Britain's economy risked prolonging its slump.
"Notwithstanding the recent uptick in activity, per capita income remains 6 percent below its pre-crisis peak, making this the weakest recovery in recent history," the report said.
The verdict came just hours after minutes to the Bank of England's last meeting in May showed policymakers remain reluctant to offer more monetary stimulus to the economy.
The minutes showed the nine members of the Monetary Policy Committee unanimously approved keeping the base interest rate at 0.5 percent but disagreed on pumping more money into the economy. Since 2009, the bank has injected 375 billion pounds ($579 billion) into Britain's economy in a program known as quantitative easing.
Under the program, the bank buys government bonds from financial institutions, hoping they will lend to businesses and individuals. Governor Mervyn King and two other members pushed for an increase of 25 billion pounds, but were outvoted.)
The continued fragility of the economy was made clear in new figures on retail sales, released Wednesday, which showed a sharp 1.3 percent drop in April compared with March. That was much worse than the 0.1 percent rise analysts were expecting.
Samuel Tombs, an economist with Capital Economics in London, noted that the Bank of England's minutes showed a greater concern about the impact that stimulus could have on inflation expectations.
The IMF noted in its report that inflation was easing, which should allow the Bank of England's policies _ which it described as "vigorous and appropriate" _ to remain accommodative for the time being.
It acknowledged, however, that the impact of such easy monetary policy is being hindered by the fact that the banks are still cautious about lending. To address that issue, banks should be made to improve their balance sheets, which would reduce risk and encourage them to lend more.
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