Monday, June 6, 2011
IMF backs UK policy but warns of growth risks
The International Monetary Fund backed the British government's plans to reduce the budget deficit, but said tax cuts or more quantitative easing may be needed if growth proves persistently weak.
Britain's economy is likely to grow by around 1.5 percent in 2011 before achieving growth of about 2.5 percent in the medium term, the IMF estimated. But it acknowledged that there were major risks to this outlook, as for all big economies.
These risks include euro zone debt problems, volatile commodity prices, the health of Britain's housing market and the amount of spare capacity in the UK economy.
Finance minister George Osborne welcomed the IMF's annual economic assessment, which comes after he dismissed criticism from more than 50 left-leaning economists over the weekend that his plans risked derailing economic recovery.
If the economy grew as expected, the government and Bank of England policy looked about right, the IMF said.
"We consider the current deviations from forecast represent temporary factors and that the current policy mix strikes us as appropriate," IMF Acting Managing Director John Lipsky told a news conference after the report was published.
Economists saw little change in the tone of the IMF's assessment of the UK, despite the fact that growth had been slower than the IMF had forecast when it made its last so-called Article IV report in September.
"All told ... the IMF statement gives the Treasury a useful thumbs-up," said David Tinsley, a UK economist at National Australia Bank.
The new 2011 forecast is slightly below the 1.7 percent estimated in the IMF's April set of global economic forecasts, and the 2 percent forecast in the September report.
Britain's economy is likely to grow by around 1.5 percent in 2011 before achieving growth of about 2.5 percent in the medium term, the IMF estimated. But it acknowledged that there were major risks to this outlook, as for all big economies.
These risks include euro zone debt problems, volatile commodity prices, the health of Britain's housing market and the amount of spare capacity in the UK economy.
Finance minister George Osborne welcomed the IMF's annual economic assessment, which comes after he dismissed criticism from more than 50 left-leaning economists over the weekend that his plans risked derailing economic recovery.
If the economy grew as expected, the government and Bank of England policy looked about right, the IMF said.
"We consider the current deviations from forecast represent temporary factors and that the current policy mix strikes us as appropriate," IMF Acting Managing Director John Lipsky told a news conference after the report was published.
Economists saw little change in the tone of the IMF's assessment of the UK, despite the fact that growth had been slower than the IMF had forecast when it made its last so-called Article IV report in September.
"All told ... the IMF statement gives the Treasury a useful thumbs-up," said David Tinsley, a UK economist at National Australia Bank.
The new 2011 forecast is slightly below the 1.7 percent estimated in the IMF's April set of global economic forecasts, and the 2 percent forecast in the September report.
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