LONDON (Reuters) - The IMF renewed its calls on Britain's government to do more to boost its sluggish economy but finance minister George Osborne was boosted by support from member countries of the Fund for his austerity push.
"The economy remains a long way from a strong and sustainable recovery," staff at the International Monetary Fund said on Wednesday as it expanded on an initial report on Britain's economy published in May.
The Fund said the government's belt-tightening to date had been the most severe among the world's big, rich economies, even though Osborne has pushed back some of his targets for tackling the country's fiscal mess.
"Despite flexibility, consolidation has hurt growth," the IMF said in an annual assessment.
Osborne locked horns with the IMF earlier this year when it became clear the Fund was losing patience with his determination to stick to a package of spending cuts.
But there was some good news for him last week when the Fund raised slightly its forecast for Britain's growth this year.
And on Wednesday, he got another boost when a majority of the Fund's directors - who represent national governments - sided with him on the austerity question, disagreeing with their own staff's recommendations.
"Most directors underscored the importance of keeping fiscal consolidation on track to preserve credibility, not least in light of the persistent weakness of the fiscal position," the Fund said in a news release.
In its staff report, the Fund estimated the push to fix Britain's gaping budget deficit had wiped out at least 2.5 percent of gross domestic product on a cumulative basis.
It outlined measures to boost growth including bringing forward planned spending on infrastructure.
The IMF also sounded a note of caution on how much could be achieved through aggressive stimulus measures undertaken by Britain's central bank, a key part of the Conservative-led government's strategy for getting the economy back on track.
"Without fixing other things (the BoE) is pushing on string to some degree," IMF economist Alasdair Scott told reporters.
A spokesman for the Treasury, responding to the IMF report, said the government would "continue to confront head on" the country's economic problems.
Britain's economy is expected to grow 0.9 percent in 2013, according to the latest IMF forecast, up from 0.2 percent last year.
Some private economists are penciling in slightly higher growth this year after recent signs that the recovery might be gathering a bit of speed.
The IMF said Britain should try to capitalize on the signs of recovery by taking advantage of low borrowing costs and weakness in the labor market.
"We think policy should take advantage of this nascent recovery, notably fiscal policy," Krishna Srinivasan, the IMF's mission chief to Britain, told reporters.
Tax incentives to boost investment and get more people back to work were generally too small and in some cases would take too long to implement, the IMF said.
It repeated its call on the government to set out a clear strategy to return state-rescued banks Lloyds and RBS to private hands and said it should be ready to offer additional capital.
While British banks were generally in better health than their EU peers, they were in markedly worse shape than U.S. banks, the IMF report said.
(Additional reporting by Christina Fincher; Editing by Hugh Lawson)
(c) Copyright Thomson Reuters 2013. Check for restrictions at: http://about.reuters.com/fulllegal.asp