IMF puts an end to British economy myth: Comment

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Economics is rich in myths and one of the most enduring myths about the British economy in recent years is that the Government's borrowing requirement has slipped a bit but at least it is better than the Europeans can manage. We might not want to join the single currency, but, by golly, we could if we wanted to.

This happy notion, much encouraged by Kenneth Clarke, was firmly scotched by yesterday's new set of forecasts from the International Monetary Fund. The IMF gave the UK a pretty good clean bill of health during the summer and it hasn't changed its mind. But the one critical observation it makes is that a "correction" is needed in the public finances.

The Fund is less vulnerable than the European Commission to rigging its forecasts in order to make it look as though France and Germany will meet the 3 per cent public deficit to GDP ratio needed to qualify for EMU. Then again, Washington is much further away from those over-enthusiastic Paris and Bonn officials.

So the IMF can be trusted when it predicts that the French and Germans will scrape under the wire in 1997. Its economists add the caveat that there is actually a risk of public spending cuts leading to slower growth that would derail the achievement of the deficit target.

Equally, they mean what they say when they forecast that the UK will not satisfy this criterion. In fact, the British budget position next year will be little better than the Spanish or the Portugese. Only the Greeks and Italians will do much worse.

In the long run the UK enjoys a much better outlook for its public finances.

It has neither a dramatically ageing population nor has it an over-generous pension system so it does not share huge "invisible" pension liabilities with the continental governments.

However, that should not permit Mr Clarke to rest on his laurels in the meantime. He has not earned them yet.