Member Article

IMF calls for changes to UK fiscal plan

The UK economy is still a “long way from strong and sustainable recovery” according to the International Monetary Fund’s (IMF) annual check-up.

A report from IMF has called the UK economy weak, and warned it could suffer even further if no support is given.

Despite encouraging economic data from the UK, IMF reportedly said the Government should decelerate its plans for austerity cuts and put in new measures to support growth and the economy.

Speaking in London on Wednesday, first deputy managing director of IMF, David Lipton, said there is a long way to go before the UK economy is strong and sustainable.

He added that, without an adjustment to the UK’s fiscal plans, unemployment could rise and growth could narrow.

George Osborne was called on to accelerate infrastructure plans to balance £10bn of cuts that will be made this year, while it was suggested dramatic austerity plans could be a drag on growth.

Commenting on the consultation, the Institute of Directors (IoD) chief economist, Graeme Leach, said: “There weren’t any surprises from the IMF, but we do have concerns with some of what they said.

“Large issuance of capital could undermine growth in the money supply and make quantitative easing more difficult. Yes, bank balance sheets need to be repaired, but not at the expense of an impaired recovery.

“Secondly, when the IMF says that planned fiscal tightening will be a drag on growth, the discretionary measures amount to only £10 billion, which is pretty small.

“It would make more sense to argue to maintain the overall level of public spending, whilst shifting a greater proportion towards infrastructure, where the fiscal multipliers are stronger.

“In other words spend the existing money better, rather than spend even more. Finally, when the IMF talks about potential structural or supply-side reforms, the list is fairly short.

“The UK economy needs a seismic shift in the burden of red tape, employment law and planning rules, together with far more competition in both the public and private sectors. The IMF, like the Government, has a poverty of ambition here.”

TUC general secretary, Frances O’Grady, commented: “The IMF prognosis on the UK economy is damning – this is the weakest economic recovery in recent history. Our growth prospects remain poor and young people are paying the price.

“Worse still, much of this pain is self-inflicted. Capital investment – the best way to lift countries out of recession – is now at its lowest level since the Second World War.

“The Chancellor should heed calls from both the IMF and the TUC to bring forward capital spending. Our research shows that spending £30bn on infrastructure projects would boost growth and pay for itself in the long run.

“The IMF is clear – strong growth is the only way to raise living standards and deal with the deficit in a sustainable way. The government must change course and prioritise a strong recovery over its never-ending, growth-sapping austerity.”

This was posted in Bdaily's Members' News section by Miranda Dobson .