IMF warning over 'bumpy and uneven' UK recovery

Britain will have a "bumpy and uneven recovery" and ministers must be ready to change economic policy if growth and inflation do not develop as they hope, the International Monetary Fund has warned.

In an assessment of the state of the UK economy, the IMF gave its backing to the Government's policy of "fiscal consolidation" to cut the deficit through tax hikes and spending cuts, backed by low interest rates set by the Bank of England.

But the international finance body warned that the growth outlook was "subject to considerable uncertainties", and predicted a GDP hike of just 1.5% this year and 2.5% in 2012 - slightly below the 1.7% in 2011 and 2.5% for 2012 forecast by the Office for Budget Responsibility at the time of George Osborne's budget in March.

Weaker-than-expected growth might require the Government to adopt "looser macroeconomic policies" such as tax cuts to stimulate demand, while the Bank launches a fresh round of quantitative easing - effectively printing money - said the IMF.

However, the Bank must be ready to intervene to dampen demand by increasing interest rates from their record low of 0.5% if there are signs inflation is taking off, said the report.

Inflation can be expected to remain "well above 4%" for the remainder of 2011 before declining to near the Government's 2% target by the end of next year, it added.

The directors of the IMF "consider the current mix of accommodative monetary and tight fiscal policy to be appropriate", said today's report.

But it added: "Directors noted that the growth outlook is subject to considerable uncertainties. They agreed that policies may need to adjust in the event of a change in macroeconomic conditions.

"In particular, if growth and inflation surprise on the upside, monetary tightening would need to accelerate.

"Conversely, mounting evidence that weak demand is likely to cause the economy to stall and enter a period of prolonged low growth would call for looser macroeconomic policies."

The deputy director of the IMF's European Department Ajai Chopra said that the most likely scenario for the UK economy is a gradual recovery, with continued "headwinds" due to the sluggish housing market, Government belt-tightening and businesses and individuals paying off their debts.

But, writing in the Daily Telegraph, Mr Chopra said that another possible scenario could see "a prolonged period of weak growth, high unemployment, and subdued inflation".

"Currently, we don't expect this scenario to happen," he said. "But if such a scenario appears to be in prospect, we recommend responding quickly with some combination of further quantitative easing by the Bank of England and temporary tax cuts."

Mr Chopra wrote: "The IMF is expecting a bumpy and uneven recovery in the UK... Over the medium term, we expect growth to accelerate gradually to about 2.5%.

"But volatile commodity prices, the uncertain magnitude of fiscal headwinds, and problems in the eurozone have added a lot of uncertainty to this outlook. It's not easy to steer a clear course in such circumstances."

PA

News
people

Actress sees off speculation about her appearance in an amazing way

Arts and Entertainment
Serge Pizzorno of Kasabian and Noel Fielding backstage at the Teenage Cancer Trust concerts
musicKasabian and Noel Fielding attack 'boring' musicians
News
peopleLynda Bellingham's tragic final Loose Women appearance moves audience to tears
Arts and Entertainment
'Right Here' singer Jess Glynne is nominated for Best Newcomer at the MOBO Awards 2014
musicExclusive: Jess Glynne hits out at 'ridiculous' criticism of white artists nominated for Mobo Awards
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Separated at birth? Frank Sivero (left) claims The Simpsons based Mafia character Louie on his Goodfellas character
arts + entsFrank Sivero sues Simpsons studio over allegedly basing mobster character on Frank Carbone
News
Carl Bernstein (left) and Bob Woodward (right) with former 'Washington Post' executive editor Ben Bradlee
people

The Washington Post editor helped Bob Woodward and Carl Bernstein bring down President Nixon

News
news

Voices
Stephanie first after her public appearance as a woman at Rad Fest 2014
voices

Arts and Entertainment
Laura Wood, winner of the Montegrappa Scholastic Prize for New Children’s Writing
books

Children's bookseller wins The Independent's new author search

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Database Administrator

£300 - £350 Per Day: Clearwater People Solutions Ltd: The role could involve w...

Science Teacher

£21000 - £35000 per annum: Randstad Education Cambridge: Qualified secondary s...

Deputy Head of Science

£22000 - £36000 per annum + MPR / UPR: Randstad Education Southampton: Our cli...

Finance Manager - Recruitment Business (Media & Entertainment)

£28000 - £35000 per annum + negotiable: Sauce Recruitment: We have an exciting...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London