The IMF “audit” coincided with the publication of a letter by dozens of leading economists calling on Chancellor George Osborne to change from a strategy of cuts to one that might stimulate the very sluggish – if not stalled – economy.
They insisted that he switch to a so-called “Plan B” although this was greeted with criticisms from other economists and financial analysts who argued that such a U-turn would panic the financial markets and make the increased government borrowing necessitated by the current slump even more expensive.
Mr Osborne, who appeared at all times to be confident the IMF would endorse his strategy, was hugely gratified when its acting managing director John Lipsky told reporters, in so many words, that there should be no Plan B – because it believes the causes of low growth and high inflation are temporary and will fall away in due course.
“We consider the current deviations from forecast represent temporary factors and that the current policy mix strikes us as appropriate”, said Mr Lipsky.
That plan is built around £111 billion in cuts to government spending – a huge component of the British economy – and tax rises between now and 2015.
But the organisation did concede that unemployment in this country is “unacceptably high” and that if it – and economic stagnation – persists then the Bank of England should resume “quantitative easing” and cut taxes.
Mr Osborne, in turn, made some conciliatory noises – notwithstanding the belief that potential adverse market reaction to a perceived softening has tied his hands – when he said his “Plan A” does have a certain amount of flexibility built into it.
In its report, the IMF revised downwards its growth forecast for the United Kingdom from 1.7 per cent to 1.5 per cent but predicted this would eventually rise to 2.5 per cent within the term of this parliament.
The British Retail Consortium said like-for-like sales fell by 2.1 per cent from the previous May, worse than economists’ expectations, even though they had risen by 5.2 per cent in April. The April boost was attributed to Easter, the royal wedding and good weather among other things. Consumer spending is responsible for two thirds of the Britain’s gross domestic product.
