IMF provides assessment for UK economy
The International Monetary Fund (IMF) has today published its annual assessment for the UK economy and is estimating growth of 1.5% this year, down from 1.7% in April.
The estimate is roughly in line with other forecasts for the UK economy with the British Chambers of Commerce expecting growth of 1.3%, the Organisation for Economic Cooperation and Development estimating 1.4% but a more optimistic 1.7% from the Office of Budget Responsibility.
Growth forecasts have been slashed over the last few months after the Government’s harsh spending cuts have hampered growth, as well as the severe wintry weather at the end of last year.
Over recent months, many business groups and economists have said the massive spending cuts introduced to deal with the budget deficit could cause the economic recovery to falter and possibly push the UK back into a recession.
Meanwhile, the IMF’s report comes shortly after some of Britain’s top economists called on Chancellor George Osborne to come up with a plan B for the UK economy.
It has been suggested that the Chancellor’s massive spending cuts are too harsh for the fragile economy and a plan B on economic policy is required.
Meanwhile, the IMF said higher inflation and weak growth had been “unexpected”, but said they were “largely temporary”.
UK inflation is currently running at more than double the target of 2% and the Bank of England has also stated that pressures are temporary and inflation will fall back to its target by 2012.
The Bank has so far opted to keep interest rates at the historic low of 0.5% for more than two years, despite soaring inflation, and the IMF said by keeping interest rates low, companies and individuals will be able to pay off their debts, while lifting investment and exports.
However, the Fund said if growth strengthens then the central bank will need to lift interest rates gradually.