IMF backs UK coalition's deficit-reduction policies
Britain does not need to change its current economic policies as recent weak growth and high inflation are likely to be temporary, but a new approach may be needed if these problems persist, the IMF said yesterday.
In an annual report on the economy, the IMF broadly endorsed the deficit-reduction policies being pursued by the ruling coalition, which the opposition say are causing weaker growth. The IMF said the government should maintain its current course. "The weakness in economic growth and rise in inflation over the last several months was unexpected.
"This raises the question whether it is time to adjust macroeconomic policies. The answer is 'no' as the deviations are largely temporary," it said.
However, the IMF said that there were significant risks around its economic outlook. If growth faltered further and inflation also eased, then a mix of more quantitative easing by the Bank of England and tax cuts aimed at the poor and to help investment would need to be considered, it said.
If inflation remained high despite weak growth, then that would suggest a shortage of capacity in the economy and a possible need for higher interest rates.
If growth strengthened as expected, the bank would probably also need to raise interest rates at a gradual pace. The IMF saw GDP growth of around 1.5pc in 2011, rising to 2.5pc in the medium term.
Separate data yesterday showed that buoyant exports boosted British manufacturers in the second quarter, and firms expect demand to stay strong in coming months. (Reuters)