`Skilful' Chancellor wins rave review from the IMF
Eve of Budget: The UK gets a glowing report as DTI prepares to boost small business
Monday 08 March 1999
There was room for further interest-rate cuts, the IMF's annual health check concluded. The IMF is forecasts that growth will slow to 0.8 per cent this year, slightly lower than its last published forecast, with the risk that it could be lower if world demand weakens again.
Apart from this caveat, Gordon Brown could not have asked for a more positive assessment on the eve of Tuesday's Budget. The IMF said: "The United Kingdom has significantly improved the architecture of macro-economic policymaking." It went on: "Executive Directors commended the authorities for the UK's impressive economic performance."
A Treasury statement welcomed the findings of the annual "Article IV" consultation. It said: "The Government is now addressing the fundamental structural weaknesses which have held Britain back for decades."
The IMF had special praise for the operational independence of the Bank of England and for the openness of its decisions. Britain had set an example other countries should follow, it said.
The fund welcomed the symmetric inflation target, which allowed the Bank to cut interest rates rapidly as growth slowed. "Monetary and fiscal policies are in a good position to ensure that the slowdown will be limited and of short duration."
The assessment said the Chancellor must stick to his plans to keep government borrowing low, saying his rules to limit current spending and keep the national debt at a sustainable level "did not impose clear enough limits on future policies". It urged him to go further in improving the transparency of fiscal policy, publishing more detail on public spending and on "tax expenditures" such as the new Working Families Tax Credit.
The summary also noted that some of the fund's board of directors were concerned that the national minimum wage could have an adverse effect on jobs.
However, it welcomed the broad thrust of the welfare-to-work measures introduced by the Government. Indeed, it recommended more of the same in order to shrink the poverty trap, although recognising that this would require extra public spending.
The IMF's forecast of growth of 0.8 per cent in 1999 is, as with other recent forecasts, below the 1 to 1.5 per cent predicted by the Treasury in November's Pre-Budget Report. The Chancellor has decided nevertheless to stick to his more upbeat forecast, a move likely to raise some eyebrows in the City.
Inflation will hit the 2.5 per cent target, while unemployment will edge up to 5 per cent on average in 1999, according to the report. The strong pound means that the trade balance is holding growth back. The balance of payments deficit is expected to widen further this year.
The Government's commitment to stability had created a virtuous circle of greater confidence, rising demand, job gains, reduced unemployment and higher asset prices, the IMF said.
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