George Osborne will have felt a glow of pleasure at the verdict delivered on his economic plans by the deputy director of the International Monetary Fund, John Lipsky, yesterday. There has been some unexpected weakness in the UK economy, argued the IMF report, but this should prove temporary. Consumer confidence and respectable growth will return next year. Keep to the macroeconomic course, was the advice.
Some treat IMF economic forecasts and prescriptions as if they are unchallengeable Papal edicts. But the IMF is not infallible, as should be all too apparent from its forecasting record. The organisation's economists forecast growth of 2 per cent for Britain in November 2010. That was reduced to 1.7 per cent in April. And yesterday it came down further to 1.5 per cent. That is a considerable change in a short space of time. One does not have to go much further back to find still more egregious forecasting errors. In April 2008, the IMF predicted UK growth of 1.6 per cent in the UK in 2008 and 2009. What we actually got was a contraction of 2.9 per cent in the first year and 3.7 per cent in the next.
Mr Osborne is fond of arguing that the "economic consensus" supports his drastic deficit reduction schedule. That is an increasingly dubious claim, as the letter written by a host of economists at the weekend, calling for the Chancellor to alter his course, demonstrates. And in any case it is of only minor importance. If the economy relapses into recession, or delivers growth so weak that the deficit remains high, the Chancellor will not be able to blame the advice he was given by bodies such as the IMF.
Mr Osborne argued yesterday that there is "flexibility" in his plans. If necessary, he claimed, looser monetary policy will come to the rescue. This is a very different tune from what the Chancellor was singing a year ago when he unveiled his emergency Budget. That change is welcome. But it is not enough. Despite what the IMF argued yesterday, Mr Osborne needs a fiscal plan B, to be implemented if his optimistic forecasts for the economy are not fulfilled. His refusal to outline one continues to be the height of recklessness.