In Which the IMF Takes Its Place at the Head of the Sixth International, and Calls for a Less Destructive and Contractionary Monetary Policy in Britain
Via Duncan Black, The Manchester Guardian on the eurocrisis:
Eurozone crisis live: IMF warns UK may need fiscal stimulus: 2.18pm: The Ernst & Young ITEM Club has welcomed the Christine Lagarde's recommendation that UK interest rates should be cut. Andrew Goodwin, its senior economic advisor, said:
Cutting interest rates from 0.5% would certainly be a good place to start – the Fed's target range is 0-0.25% and we have always said that ours should be the same. It won't be the solution on its own, but would certainly send out the right signal.
Goodwin is less convinced that yet more quantitative easing would work (another proposal from the IMF today). Instead, he favours more spending on infrastructure projects, such as high-speed broadband networks, the smart grid and the revival of projects for Carbon Capture at power stations, or new nuclear plants….
1.55pm: Here's economics editor Larry Elliott's take on this morning's announcement from the IMF:
Britain needs a plan B. That was the stark message from the International Monetary Fund on Tuesday as it announced the findings of its checkup on the UK economy. The Washington-based Fund says growth is weak, unemployment too high and the risks are clearly weighted to the downside. Extra stimulus, it says, is needed and needed now.
So, game and set and match to the shadow chancellor, Ed Balls, who has been warning George Osborne for the past 18 months that the government's austerity package is too much, too soon for an economy as enfeebled as Britain's at a time when its major trading partner, Europe, is involved in a life-or-death struggle to save the single currency?…
11.50am: Here's a quick summary of what happened at the International Monetary Fund's briefing in London this morning. The IMF has warned that the UK government should consider a new fiscal stimulus plan, if the British economy does not recover. Should growth remain below target, new fiscal easing measures should be considered -- including temporary tax cuts and more infrastructure spending.
Christine Lagarde, head of the IMF, said that economic growth was currently too low, while unemployment (especially among young people) was too high. The IMF also urged the Bank of England to stimulate the economy through another round of quantitative easing, and to also consider fresh interest rate cuts.
The IMF also congratulated the UK government on its progress in dealing with the crisis, but argued that Britain's current record low interest rates gave it the opportunity to borrow more today. As the FT puts it, Britain "should prepare for Plan B" (although Lagarde didn't put the issue such political terms)….
11.22am: You can also read the full details of the conclusion of the IMF's mission to the UK, here on the Treasury's website. The key points with regard to a new fiscal stimulus are number 12:
There is scope within the current overall fiscal stance to improve the quality of fiscal adjustment to support growth
and number 13:
Fiscal easing and further use of the government's balance sheet should be considered if downside risks materialize and the recovery fails to take off. In particular, if growth does not build momentum and is significantly below forecasts even after substantial additional monetary stimulus and further credit easing measures, planned fiscal adjustment would need to be reconsidered
11.12am: The UK Treasury has uploaded a copy of George Osborne's remarks at today's press conference, here on its website. They show that Osborne did not respond to the IMF's argument that a new fiscal stimulus could be required, but instead focused on the recommendation for the Bank of England to cut rates or create more electronic money now....and on the crisis in Europe. Osborne said:
The IMF identifies setbacks in the euro area as the key risk to the UK's economic prospects and financial stability. In the UK, we have a flexible exchange rate and independent monetary policy, which allows us to ease the process of fiscal adjustment with a lower exchange rate and supportive monetary policy. The IMF has advice for the Bank of England on that today. But in the eurozone, indebted countries have to deal with high budget deficits without that support.
Behind the scenes, Treasury officials are also briefing that the IMF has not made a dramatic change in position, and still supports the government's plans.