Outlook: UK economy

THE INTERNATIONAL Monetary Fund yesterday added its voice to the growing calls for more cuts in UK interest rates.

But the IMF, the Confederation for British Industry, the unions and just about everybody else you can think of may be disappointed, at least in the near term.

The latest indicators suggest the economy is not is in quite as bad a shape as some of the more gloomy pundits were suggesting in the autumn.

Of particular note is the surprising strength of November's retail sales, released last week. Supposing the data can be trusted, which is a big if these days, consumer confidence is not quite as low as feared. This, combined with evidence of continued growth in the services sector, may be enough to persuade the Bank of England to sit on its hands in January, although another cut is still on the cards in February.

In common with every other forecaster apart from the Treasury, the IMF finds it impossible to go along with the growth forecasts that Gordon Brown has assumed for next year and on which his ability to stick to the golden rule or borrowing only to invest depend.

The Chancellor believes growth will be between 1 and 1.5 per cent. The IMF, with the benefit of a little more hindsight and factoring in the impact of the Russian default crisis and the credit squeeze foreshadowed by the near collapse of LTCM, reckons growth will undershoot 1 per cent.

However, it does, along with Mr Brown, believe that the slowdown next year will be shortlived, partly because of rate cuts here and elsewhere.

This all means that the Bank should be wary of cutting too far, too fast and storing up trouble further down the line.