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Obama jobs plan ruled out by Downing Street

No 10 distances itself from White House economic policy as IMF chief warns UK may have to adjust approach to deficit reduction

Downing Street has flatly ruled out following the example of Barack Obama, who is attempting to boost the US economy with a 0bn jobs plan, by warning that Britain still faces “fiscal risks”.

As the head of the International Monetary Fund (IMF) warned in London that Britain may have to adjust its approach – which is to focus on deficit reduction – No 10 distanced itself from the White House action by saying that Obama had been forced to act after “particularly bad news” on jobs.

“Of course they have had particularly bad news over a sustained period with their labour market,” the prime minister’s spokesman said in response to Obama’s speech to the US Congress on Thursday night. “He is seeking to address that.”

Downing Street made clear that Britain would not be following the example of the US after Christine Lagarde, the managing director of the IMF, praised Obama’s plan. Speaking at a joint event at Chatham House on Friday morning with George Osborne, Lagarde said: “We welcome the proposals announced by President Obama last night, which focus on supporting growth and job creation in the short term.”

But Lagarde added that she looked forward to hearing about Obama’s plans to cut the country’s debt. The IMF director added: “As the president also emphasised, it remains critical for the United States to clarify its medium-term plan to put public debt on a more sustainable path, and we look forward to the proposed consolidation plan to be announced in the coming days.”

Lagarde described Britain’s plan to eliminate the structural deficit by 2015 as “appropriate”. But she warned that Osborne may have to change stance if the economy fails to grow at a faster pace.

“The policy stance remains appropriate, but the heightened risk means a heightened readiness to respond particularly if it looks like the economy is headed for a prolonged period of weak growth and high unemployment.”

Osborne made clear there would be no change to his deficit reduction plan which he described as “the rock of stability upon which our recovery is built”.

Downing Street made clear its determination to stick to Britain’s deficit reduction plan – and to rely on monetary, rather than fiscal, policy – when it outlined why the Obama jobs plan would be wrong for Britain.

The prime minister’s spokesman said: “Every country needs to have a response which is appropriate to its particular circumstances. The US is in a slightly different position to other countries because it has a reserve currency. Therefore it doesn’t face some of the same constraints that other countries might face in taking that kind of action. It gives them more flexibility to do that.”

The US Jobs Act would also not add to the US deficit, the spokesman added. “It is true, if you look at what Obama said, that he has been very clear that the American Jobs Act will not add to the deficit and that [in] the agreement passed in July, which cut government spending, he will be looking for more measures to cover the full cost of the Jobs Act.”

The No 10 spokesman added that Britain had to act with caution because it faced “fiscal risks”. The spokesman said: “Those countries which have particular fiscal risks – and remember we have the biggest deficit of any country pretty much – those countries need to take action to address their deficits and to consolidate.”

Ed Balls, the shadow chancellor, endorsed Lagarde’s warning. “Christine Lagarde is right to repeat her warning that cutting too quickly will hurt the recovery and jobs and that there is scope for reducing deficits more steadily to support economic growth. This is clearly a message aimed squarely at America, the eurozone and Britain too.” © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds