IMF on UK Economic Policy

by Mark Johnston

The International Monetary Fund (IMF) has issued a report on the state of the nations economic policies and reforms.  The report has suggested no changes are needed to the UK policy on economic recovery and growth, a compliment that the government is only too happy to welcome. 

When commenting on the recent hike in inflation figures, the IMF said that it had been “unexpected” and that the increase and weak economy was “largely temporary” but the report did go on to comment that there would still be significant challenges in the coming years that would require a suitable and stable response through policy.

The medium term forecast for the UK economy is still marked at 2.5 per cent but has reviewed and rectified its short term growth rate from, originally 2 per cent, to 1.7 per cent in April and now down to 1.5 per cent for 2011.

In a recent interview Mr Lipsky said that “The current slowdown in our view is temporary and the current policy mix is appropriate.”  A sign that they are neither concerned over our policies nor worried about the direction the coalition government is taking.  The Chancellor of the Exchequer commented; “I welcome the IMF’s continued strong support for our overall macroeconomic policy mix, including our deficit reduction strategy.”

“The IMF have publicly asked themselves the question ‘whether it is time to adjust macroeconomic policies’ – in other words, is it time to change course? And they have concluded definitively that ‘the answer is no’.”

The IMF report did point to rising commodity prices and the increase in VAT as causes for the temporary inflationary rises recently experienced.  The report did suggest that inflation may stay above 4 per cent for the rest of the year but may well return to around the 2 per cent mark by next year as oil and food prices settle down.

Mr Osbourn would have welcomed the conclusion reached by the IMF that the programme of cuts and tax increases has and will remain “essential” to the recovery.  This comes at a price though.  The IMF deputy director has said that “uncertainty around the central forecasts remains high”, as it does in many other economies.”  He went on to add that “the unemployment rate remains unacceptably high but it seems to have stabilised”.

Aidan Manktelow from the Economist Intelligence Unit said that “It’s probably not surprising that you’re getting a lot of nervousness about what the UK government is doing, which is still unique in an international context,” “I think the government’s going to have to live with nervousness over its approach and calls for a more growth-supporting strategy for some time now.”

The IMF report went on to commend the Bank of England for retaining low base rates, adding that the low rate gives companies and individual an opportunity to pay off their debts.

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