The IMF shifts its position on the UK
Here’s what the IMF said in in July in its UK-specific country report:
“If the economy appears likely to experience prolonged weak growth and lower inflation, fiscal automatic stabilizers should operate freely and monetary policy should be kept loose for an extended period. To prevent a downturn from becoming entrenched, additional stimulus may be required from BoE asset purchases and temporary targeted tax cuts, combined with deeper long-run entitlement reform to safeguard fiscal sustainability and market confidence.”
Here’s what the IMF managing director, Christine Lagarde (right), said on her visit to London earlier this month:
“The policy stance remains appropriate, but this heightened risk means a heightened readiness to respond—particularly if it looks like the economy is headed for a prolonged period of weak growth and high unemployment.”
And here’s what the World Economic Outlook said yesterday:
“If activity were to undershoot current expectations, countries that face historically low yields should also consider delaying some of their planned adjustment (Germany, United Kingdom).”
That, though, was qualified by the IMF economist, Jorg Decressin, at the press conference who said:
“Policies…should only be loosened if growth really threatens to slow down substantially, relative to what we are forecasting.”
In other words, not yet.
But bear in mind that this is the third IMF downgrade of UK growth this year. If that trend continues, we’ll definitely reach the moment the IMF has identified when emergency action should be taken.
I actually doubt that the IMF would ever come out and tell George Osborne directly to ease up on the deficit reduction. It’s too politically awkward. And the IMF doesn’t tend to tell the powerful nations what to do.
Yet that doesn’t stop others reading between the lines.Tagged in: Christine Lagarde, economy, forceasts, george osborne, growth, imf, Office for Budget Responsbility, Plan B, staff
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