'I told you so' says Osborne as IMF upgrades UK forecast

Having criticised austerity 18 months ago, the IMF now reckons the UK will grow 2.4% in 2014. Take that, Oliver Blanchard.

by Emma Haslett
Last Updated: 06 Jun 2014

Expect more vindication for George Osborne later today, when the International Monetary Fund upgrades the UK’s growth prospects by 0.5% and, basically, rues the day it ever criticised the chancellor’s dogged reliance on austerity.

The IMF is due to release its growth predictions for the UK later today, when it’s expected to suggest the economy will grow by 2.4% in 2014, up from the 1.9% it anticipated in October. Set against other forecasts, it’s still conservative: according to the Treasury, the average forecast for UK growth is 2.7%.

It’s a volte-face for the IMF: in October 2012 its chief economist, Oliver Blanchard, went to great lengths to explain why austerity isn’t working. In January last year, he said it again – this time using the Today programme to tell Osborne that ‘we think this would be a good time to take stock’ and that the UK is ‘not out of the woods yet’.

Now unemployment is down, productivity is up, the economy is growing again and even inflation is (for the time being) under control, Osborne could be forgiven for setting aside time in his busy schedule to point and laugh at Blanchard.

Last week Christine Lagarde, the IMF’s managing director, said the ‘crisis still lingers’, but added that ‘optimism is in the air: the deep freeze is behind, and the horizon is brighter. My great hope is that 2014 will prove momentous.’

Well, quite. Although now recovery is on track for the UK, that doesn’t necessarily mean Osborne can rest on his laurels. Firstly, we don’t know what kind of growth we’re generating at the moment – if it’s the frothy kind or the solid kind.

Secondly, a report by the EY Item Club published yesterday predicted the requisite 2.7% growth for the UK, but added that growth in earnings may hold us back.

‘The weakness of real earnings is proving to be the government’s Achilles heel and could prove to be the weak spot in the recovery,’ said Peter Spencer, the organisation’s chief economic adviser.

‘Consumers have reduced the amount they save to fund their spending sprees. But they cannot continue to drive growth for much longer without an accompanying recovery in real wages or a rise in their debt to income ratio.’

And we all know where a high debt to income ratio landed us last time. Wage rises – or lack thereof – could yet become the big economic talking point of 2014…

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