City takes shine off Brown's glowing beginning-of-term report from IMF

Gordon Brown's economic policies today receive the enthusiastic blessing of the International Monetary Fund. In a glowing testimonial to the Chancellor, the IMF says: "The new government has made an excellent start. It has set a high standard for its economic policies, aiming to maintain stability and foster long- term growth while seeking fairness and developing human potential.

"And it has taken decisive steps towards these goals by making the Bank of England independent, introducing a budget that makes rapid strides toward sound public finances, and initiating Welfare to Work and other programmes to enhance employability."

The findings of the IMF's annual inspection could not contrast more sharply with the highly-damaging 1976 demand for pounds 2bn spending cuts, which knocked the last Labour government completely off course.

However, it runs counter to the widespread opinion in the City that the Chancellor missed the chance to use the Budget to cool the current consumer boom.

That criticism was voiced afresh yesterday by eminent City economists addressing MPs on the Treasury Select Committee. "We should not be surprised if there turn out to be major errors in the Budget judgment," said Roger Bootle, of HSBC Markets.

Some officials in both the Bank of England and the Treasury share the view that tax increases would have taken some of the pressure to cool the overheating economy off the Bank's new Monetary Policy Committee. They argue that the price being paid for Mr Brown's omission is the strong pound, hitting export orders.

While today's report from the IMF finds no fault with the policies of the Government, it does flag up problems ahead, particularly on the conflicting pressures between the need for savings and the consumer boom, and the need for public spending restraint and promised increases in health and education spending.

At one the point, the report urges the Chancellor of the Exchequer to consider an extension of the VAT base, to damp down spending. However, a source close to Mr Brown said last night that there was no question of the Government breaking its election pledges on VAT.

As for the Tories' legacy, the report says: "Behind the impressive macroeconomic performance - strong growth, declining unemployment, and low inflation - there now loom imbalances rooted in powerful divergent forces".

The IMF backs the current Chancellor's actions, saying: "Firm implementation, particularly through observance of the control totals for spending this year and next, should boost credibility, slow the upswing, and set public finances on a sound medium-term track."