Relax austerity to boost growth, urges Capital Economics Setting out its agenda for Plan B, the consultancy said "it looks like we may have reached the point where the Government should think again about ploughing on with the austerity plans as they are." It also dismissed concerns that higher borrowing would damage the Government's credibility in the markets and deal the economy a blow by pushing up interest rates. "Increasing borrowing to provide a fiscal boost might not be as risky as it sounds," it said, with the biggest obstacle being "political, rather than market-related." Vicky Redwood, the firm's UK economist said: "There is a growing consensus that the nature of the risks to the public finances have changed. Before it was that the Government would be too weak-willed to get its spending under control; now it is that a weak economy will undermine the public finances instead. Last week, he unveiled a "funding for lending" scheme through the Bank of England to reduce the cost of borrowing on £80bn of loans to stimulate growth, but Capital Economics said more needs to be done. "It is unclear how much good looser monetary policy will do," Ms Redwood said. Infrastructure spending would be the best use of any borrowing, she added, estimating that £20bn of "investment spending would provide a boost to GDP of over 1pc." As long as any fiscal boost was a one-off, the Government could credibly claim it was only temporary. And the markets are probably long-sighted enough to realise the extra borrowing would ultimately be good for the public finances if it boosted growth. The Government needs to renew its strategy because the economy has turned out to be much weaker than expected when the austerity programme was drawn up. At the time, the economy was forecast to grow by 4.5pc more between 2011 and 2013 than now predicted.