The IMF yesterday cut its growth forecast for 2011 for the UK to 1.5 per cent but said the government's economic policy was going along swimmingly. The Chancellor seemed to be really pleased about their endorsement. But Slasher didn't seem to notice that the IMF argued that the risks to their forecasts were "significant".

Sadly, the UK economy did not grow at all over the last six months. Consumer confidence has collapsed; business confidence is weakening; employment growth has slowed sharply; house prices are falling and the number of mortgage approvals is falling; business lending is down and there remain real risks of deflation, which I guess John Lipsky, acting head of the IMF, hasn't spotted. Over the weekend, fifty economists did spot the problem and wrote to the Observer about it. The Cabinet Office's ex-chief economist Jonathan Portes and Vicky Price, ex-head of the Government Economic Service, warned that the economy was slowing, as did Tim Besley and John Muellbauer, who had previously signed a letter in the Times supporting the government's now failing strategy. The new economics Nobel laureate, Chris Pissarides, who was also a signatory to the Times letter also told me in an exclusive interview published in the New Statesman this week that his preferred action now is for a postponement of fiscal contraction. Growth is nowhere to be seen and the government has no plan to fix it.

The Chancellor's claim that his strategy was always flexible because of the use of automatic stabilisers actually amounted to an announcement of Plan B. As growth slows and unemployment rises, as it surely will, then the payments to unemployment benefits in particular start to rise. This is plainly an announcement that the speed at which the deficit is paid off will inevitably have to be slower than he had previously announced, because his policies are not working -- as I have frequently warned.

Plus, if, but more likely when, the economy starts declining further, they would have to cut taxes and do more quantitative easing. Hence Vince Cable, Osborne and now the IMF have endorsed Adam Posen's and my long-held views: that there is a possiblity of a slow, Japanese type recovery, hence the need for another round of asset purchases: ie. Plan C.

I was particularly interested to look back to the 6th August 2008 when the IMF also lowered its growth forecast for the UK economy.

The IMF predicted the UK would grow by 1.4 per cent in 2008 and 1.1 per cent in 2009, down from the 1.8 per cent for 2008 and 1.7 per cent for 2009 that it predicted in of 2008. It said inflation at 3.8 per cent was higher than expected, and inflation expectations were rising even as economic activity was slowing. That, the IMF said, meant the Bank of England had little room to cut rates. It didn't exactly turn out that way. In August 2008, the IMF didn't even spot that the UK economy had entered recession in April 2008. The IMF has no credibility in forecasting the UK economy.

Osborne has already turned, as the economy is slowing even before public spending cuts hit. The government's economic strategy is in disarray, no matter which of Osborne's pals he gets to say otherwise.