IMF attacks Brown over economic cycle

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The International Monetary Fund weighed into the controversy surrounding the Chancellor's decision to extend the economic cycle, describing the recent adjustments as an "unhelpful distraction" yesterday.

It urged the Government, which used the pre-Budget report to add another three years to the end of the cycle, to grant the National Audit Office (NAO) a wider role in assessing its "golden rule" on the public finances.

Critics say Gordon Brown has made it easier for himself to meet his golden rule to borrow only to invest when averaged over the economic cycle. The Institute of Fiscal Studies wants an independent body to date the cycle.

The IMF said "peripheral controversies" at times overshadowed the important role the fiscal rules played in disciplining fiscal policy. Its appeal for a wider role for the NAO came as it applauded the UK for "faring well" in a difficult year in its annual assessment of the economy. UK policymakers were praised for macroeconomic stability in light of the rise in oil prices and fall in house prices. The IMF predicted economic growth would pick up to 2.25 per cent next year and 2.75 per cent in 2007.

It singled out house prices and the effect of immigration as the main uncertainties surrounding the growth forecast. "House prices are still richly valued by some metrics, though a year of steady prices gives some comfort that risks of an abrupt adjustment have lessened," it said.

It added that the uncertainties made monetary decisions "finely balanced", echoing concerns held by Mervyn King, the Governor of the Bank of England, about the risk of "second round effects of energy costs on prices". It said it expects inflation to fall below 2 per cent next year.