Every so often a ratings agency or central bank weighs in with some ‘wisdom’ about various government economic policies. This time it is the IMF, which today slashed its growth forecasts for the UK economy by more than any other developed or major economy. It simultaneously attacked George Osborne’s austerity policy, saying that it was slowing growth unnecessarily.
The fund said that the UK economy would grow by just 0.7% this year, and then by a meagre 1.5% next year, both figures down by 0.3%. It is a big embarrassment for Osborne, since the body did warn back in October last year that if economic growth did not start to materialise in the UK, it would have to toughen up its assessment of how well the chancellor’s policy was working.
In its World Economic Outlook – a bi-annual report – the fund said: ‘In the United Kingdom, where recovery is weak owing to lacklustre demand, consideration should be given to greater near-term flexibility in the fiscal adjustment path.’ It added that other types of monetary easing ‘could be considered’, such as purchasing private sector assets, and ‘greater transparency on the likely future monetary stance’.
Presumably that means telling everyone ahead of time what interest rates are likely to be. Luckily, incoming Bank of England governor is said to be keen to look at techniques such as these to get the economy moving.
It is worth noting that these central banks, ratings agencies and other ‘omnipotent’ organisations are blowing hot and cold on the issue. On the one hand, they’re forcing untenable bailout packages on Portugal, Spain, Italy, Ireland, 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’.
Looks like they’ve given Plan A (austerity) a go, and now they’re having the ‘recommend’ the softer Plan B approach…