IMF Re-Assesses the British Economic Position



IMF Assessment Out Today

IMF Assessment Out Today

The International Monetary Fund has assessed the UK’s potential for economic growth overall this year. With the last figures coming in at 0.2%, the IMF has re-evaluated their predictions for growth at 1.5% instead of the 1.7% that the Office of Budget Responsibility had anticipated for 2011.

 

The IMF also backed the current government spending cuts and austerity measures. The group called the measures “appropriate” keeping in mind the current financial situation.

 

It did, however, warn that the government will need to be flexible, especially as house prices continued to fall and other new economic problems could present themselves. The lender and financial regulator calculated that inflation would be likely to fall from 5% to 2% by the end of 2012, with growth possibly accelerating to 2.5% in the same period.

 

However, the group advised that this prediction is highly uncertain, considering present global conditions. With the economic uncertainty in the eurozone as well as UK spending cuts, higher prices for food, petrol, and utilities, and the low housing market, the economy could stall.

 

According to the report, the ratio of house prices to average income is 30% above the historical average. If prices fall, consumer spending will be limited, as disposable income and overall household “wealth” will also fall. Additionally, the UK banking system was revealed to have $178 billion, or £111 billion in loans to Greece, the Irish Republic, and Portugal, the three areas in the eurozone with the most financial difficulty. This number is 25% of the total amount held by UK banks in the first quarter of this year.

 

Changes to the government plans would need to occur if the economy were to stall. This may include tax cuts, or quantitative easing from the Bank of England, in order to raise spending. Alternatively, if growth is better than anticipated, interest rates would need to be increased, to ensure control of inflation.

 

The Conservative Financial Secretary to the Treasury, Mark Hoban, had this to say, “”We know we’re in for a choppy time. What I think is important is that we stick to our course. That we continue to reduce the deficit,” citing the approval of the austerity measures by IMF.

 

In contrast, the Labour party blamed the government spending cuts for the slower growth. Labour shadow treasury minister David Hanson said, “The government have missed every target they’ve set on relation to growth so far, they’ve missed their growth targets completely.”

 

The report also called for improvements in financial reporting, saying the UK was behind other developed countries in this respect and said that even though the IMF supported austerity measures, risks still remained.

 

 

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