IMF backs UK deficit reduction plan

Brotherly love: David Miliband at the Labour conference in Manchester, where he stole the show with an appeal for unity

Pressure mounted on Ed Miliband, Labour’s new leader, to set out a distinctive economic strategy in his keynote address to the Labour conference, after the International Monetary Fund praised the coalition government’s deficit reduction plans.

In an unusually positive annual health check on the economy, the IMF lauded the government’s bold £128bn strategy to eliminate the deficit within five years, saying it ”greatly reduces the risk of a costly loss of confidence in fiscal sustainability and will help rebalance the economy”.

Fund officials dismissed the dire predictions from Ed Balls, shadow schools secretary, that spending cuts would lead to a double-dip recession and an even bigger deficit, arguing that the Bank of England still had spare ammunition if the economy slowed.

Predicting that the economy would grow 2 per cent next year and rise to a 2.5 per cent rate of growth in the medium term, the Fund has joined the Bank of England and the Office for Budget Responsibility in stating that it is most likely the economy will withstand spending cuts and falling unemployment.

George Osborne, the chancellor, seized on the IMF praise, insisting that it vindicated his strategy on deficit reduction.

“On a day when people are looking at alternative plans to reduce the deficit, it’s very good that the IMF have joined us alongside the Bank of England, British industry and others in saying that what we are doing is right,” he said.

The IMF’s conclusions add to Mr Miliband’s difficulties in devising an opposition to the public spending cuts that is both popular and credible.

In a farewell speech on Monday, Alistair Darling, former chancellor, told Labour’s conference in Manchester that if politicians denied the scale of the fiscal problem the voters “won’t listen and will walk away”.

Mr Miliband’s aides said that he would commit to a policy that dealt with the deficit “in a way that strengthens, not damages the British economy”, leaving his options open on whether to row back on the last Labour government’s promises to halve the deficit over four years.

But Mr Miliband will criticise Gordon Brown, his former boss, as he attempts to draw a line under the New Labour era in a crucial conference speech on Tuesday.

David Miliband, defeated in the leadership contest, pulled out of a series of conference fringe meetings, fuelling speculation that he might quit front line politics. Earlier he stole the show with a bravura speech in which he urged party unity.