16 April 2013

FT: IMF deals blow to Osborne's plan A

As the IMF downgraded its UK growth forecast by more than for any other advanced economy, it adopted a stronger line on deficit reduction, urging the coalition government to contemplate "plan B" without delay.

Treasury sources said the UK’s deficit reduction speed on the IMF’s favoured measure was slower than that in the US and in line with the fund’s general recommendations for advanced economies with deficit problems, adding that the call only for a “consideration” of a change in deficit reduction speed, showed the fund was still sitting on the fence. The IMF had hitherto negotiated a difficult internal compromise, in which it said the government should reflect on changing direction only if growth rates fell short of expectations, although individual members of staff veered to one side or the other of the argument.

The UK’s pace of deficit reduction of 1 per cent of national income a year was in line with the IMF’s general recommendations for advanced economies and Treasury sources pledged to make life difficult for IMF economists on their annual mission to the UK next month if the fund continued to treat the UK differently from other rich economies. Some in Conservative circles believe the UK is being used as a pawn in a larger argument over its advice on US fiscal policy.

Calling on the Bank of England to do more to stimulate growth, the report said, “other forms of monetary easing could be considered, including the purchase of private sector assets and greater transparency on the likely future monetary stance".

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