It seems almost a weekly occurrence these days that a ratings agency or central bank weighs in with some ‘wisdom’ about various government economic policies. Last month the IMF slashed its growth forecasts for the UK economy by more than any other developed or major economy. Now it is chipping in again, using its annual update to say that the government could be spending up to £9bn to offset the ‘negative impact’ of austerity. It also took the liberty of judging that the UK is a ‘long way’ from a ‘strong and sustainable recovery.’
The IMF’s managing director, David Lipton, told a London press conference: ‘It would be, in our view, useful for the economy for infrastructure and other measures to be brought forward to reduce the drag of austerity measures... and provide more support for the economy.’ He also added: ‘We’re suggesting that within the multi-year medium-term framework that the government has laid out that it should advance infrastructure spending to provide more support for the economy.’
That’s all very well, Lipton, but doesn’t a spending increase rather miss the point of austerity? Infrastructure programmes are just about the most expensive thing a government can sign a cheque for, and there are not exactly oodles of cash lying around at the moment. Not to mention that we’ve already got Crossrail (Europe’s largest infrastructure project) on the go, and HS2 on the way. In a moment of lucidity, Lipton conceded that there is no ‘single silver bullet’ that can be deployed to solve the UK’s economic problems.
It is worth noting that these central banks, ratings agencies and other ‘omnipotent’ organisations are blowing hot and cold on the issue of austerity. On the one hand, they’re forcing untenable bailout packages on Spain, Italy, Greece and Cyprus in return for tough austerity. On the other, they’re saying that Britain’s (relatively tame) austerity package is somehow ‘too much’ and ‘hampering a recovery’. Glenn Uniacke, head of options are foreign exchange firm Moneycorp, said of Lipton’s comments: ‘George Osborne has just about kept the IMF wolves from the door, but they’re circling waiting for any weaknesses in the UK’s planned austerity measures.’
The salient point here is that the IMF has repeatedly acknowledged the UK’s austerity programme has earned the government credibility in the financial markets. Blowing hot and cold indeed...