George Osborne’s infrastructure plans are a ‘win-win’ for UK, says IMF

The head of the International Monetary Fund has given a ringing endorsement to George Osborne’s plans to beef up Britain’s infrastructure, describing it as a “win-win” option to boost growth.

Christine Lagarde said targeted investment in infrastructure would create jobs in the short term and lift future growth prospects, reports The Telegraph.

The Chancellor appointed Lord Adonis this week to lead a newly-created National Infrastructure Commission that will advise the Government on new projects such as Crossrail 2 and a third high-speed rail link in the north of England.

Asked if infrastructure spending formed part of the IMF’s “policy upgrades” it believed would boost global growth, Ms Lagarde replied: “Absolutely yes.”

She said: “The research that we have done most recently shows that it’s a win-win option for an economy. It’s a winning option for the short term because it’s clearly going to support growth activity when you build new roads, when you maintain existing infrastructure.

“You put people to work [to increase] short-term activity, and it also improves medium to long-term perspectives for growth.”

The Chancellor said this week that it would be a “disaster” if the UK stopped investing in roads, railways and other large-scale projects.

While Ms Lagarde conceded that some governments had little fiscal space to embark on a spending binge, she suggested there was more room for manoeuvre in the current environment of low borrowing costs, especially for economies such as the UK, which were stable enough to “inspire confidence” among investors.

“At the moment it’s really an excellent choice,” she said.

Ms Lagarde also warned that policymakers face tough decisions as they attempt to navigate through a period of Chinese turbulence and looming US interest rate rises.

She warned complacent countries could no longer expect “somebody else to drive growth”.

Speaking on the eve of the Fund’s annual meeting in Lima, Peru, Ms Lagarde said “difficult policy trade-offs” were required to support demand and tackle financial risks. “No country can go it alone,” she said.

Ultra-loose monetary policies, deployed by central banks “at the forefront of fighting the Great Recession”, had to be matched by fiscal measures and structural reforms, said Ms Lagarde, as she voiced her frustration that some countries had made very little progress on making changes, despite several warnings from the IMF.

“It is a fact that [the IMF’s advice] has not always been applied or listened to and when you look at the structural reforms, some countries have done it, some countries have done a little bit of it, and some countries have not done much of anything, expecting somebody else to drive growth.

“So there is much more to be done.”

Ms Lagarde described the slowdown in China as “predictable, expected and anticipated”, as policymakers steer the economy towards more consumption-driven growth. However, she said steadier growth would inevitably create some “bumps in the road”.

“To ‘only’ grow at 6.8pc [this year] or 6.3pc [in 2016] with a growth model that is no longer based on massive exports relative to domestic demand, and massive investment as opposed to consumption, is a good transition but it is a massive exercise, and there will be little bumps in the road because no transition can be made absolutely smooth without disruption or volatility,” she said.