Speaking at the IMF Article IV consultation, its annual look at the UK economy, the Chancellor said the government is preparing for the worst-case scenario as the crisis in the eurozone enters a crucial stage.
“The British government is doing contingency planning for all potential outcomes – it’s our responsibility to ensure the best while preparing for something worse,” said Osborne.
He added problems in the single currency region are reaching a “critical” point.
“The eurozone countries need to stand behind its currency or face up to the prospect of Greek exit, with all the risks that could involve.”
The Chancellor, boosted today by figures showing the CPI index of inflation fell from 3.5% to 3% in April, said indebted eurozone countries have to deal with high budget deficits without the support afforded to the UK in the form of a flexible exchange rate and independent monetary policy.
He added the IMF has cited setbacks in the eurozone as the key risk to the UK’s economic prospects and financial stability.
Osborne also said the fund, headed up by Christine Lagarde, has given its backing to the UK Government’s deficit reduction programme.
But the IMF also said the UK should consider additional quantitative easing (QE) and interest rate cuts amid the gloomy economic outlook.
Today’s announcement that inflation fell to 3% in April will strengthen the hand of those arguing for an additional round of QE.
