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IMF endorses George Osborne's fiscal consolidation strategy and counsels against adjusting macroeconomic policy

By Jonathan Isaby
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The IMF has just published its annual report on the UK economy.

Here is the key section of its conclusions:

Aided by the implementation of a wide-ranging policy program, the post-crisis repair of the UK economy is underway. However, the weakness in economic growth and rise in inflation over the last several months was unexpected. This raises the question whether it is time to adjust macroeconomic policies. The answer is no as the deviations are largely temporary. Strong fiscal consolidation is underway and remains essential to achieve a more sustainable budgetary position, thus reducing fiscal risks. The inflation overshoot is driven largely by transitory factors, and hence maintaining the current scale of monetary stimulus is appropriate given fiscal adjustment and subdued wage growth. This macroeconomic policy mix will also assist in rebalancing the economy toward investment and external demand. Bank balance sheet repair continues, but vulnerabilities remain and strong domestic measures and international coordination are needed to further bolster financial stability. Indeed, the stability and efficiency of the UK financial system is a global public good due to potential spillovers and thus requires the highest quality of supervision and regulation. Nonetheless, there are significant risks to inflation, growth, and unemployment. If they materialize, the policy response will depend on the nature of the shock.

More detail here.


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