IMF tells UK to consider rate cut to boost growth


Christine Lagarde: "When I look back to 2010 and what could have happened... I shiver"

The International Monetary Fund (IMF) has said the UK's continuing economic weakness means authorities should consider more quantitative easing (QE) and even cutting interest rates.

Its annual look at the UK economy endorsed the government's deficit cutting plan, saying it was essential.

But it said if growth failed to pick up, the government would have to consider delaying cuts.

The body also stressed the risks to the UK of the eurozone crisis.

"Unfortunately the economic recovery in the UK has not yet taken hold and uncertainties abound," said IMF managing director Christine Lagarde.

"The stresses in the euro area affect the UK through many channels. Growth is too slow and unemployment - including youth unemployment - is too high. Policies to bolster demand before low growth becomes entrenched are needed."

It was a case of "nice policies, shame about the economy".

There was a lot of support for what the government has been doing so far and a lot of blunt words about what has been happening in the economy.

The IMF did seem to think that the Bank of England should do more now to help the recovery, maybe even cut interest rates from their current very low level, and pump more money into the economy.

There was also quite a long list of things that Ms Lagarde thought the chancellor should be doing.

What was important to him is that most of those things are things that he and the prime minister have actually talked about.

Things like making it easier for businesses to borrow and more infrastructure projects financed by the private sector.

The second part of the IMF report talks about what the government might need to do if things get worse - a Plan B.

It is not saying it is time for that yet, and although the economy has weakened, the IMF still doesn't think that it is bad enough to go there just yet.

UK interest rates are currently at a record low of 0.5%, a level the IMF said the Bank of England should reconsider the "efficacy" of.

It said the Bank of England's Monetary Policy Committee (MPC), which sets interest rates and authorises other monetary boosts, such as QE - which involves pumping money into the economy to boost growth - should look at loosening the purse-strings.

These stimulus measures can lead to higher inflation, but the IMF's report comes on the same day of the latest UK inflation figures, which show a sharp drop in the annual rate to 3% last month, the lowest rate since February 2010.

The Bank of England and the IMF both expect that rate to continue to come down.

One suggestion was for the rate of VAT to be cut, something the Labour opposition have been advocating.

The IMF's technical expert on the UK economy, Ajai Chopra said: "I think the sort of measures we have in mind are, one could consider cutting the Value Added Tax. One could consider the payroll contributions because these can be credibly temporary. The emphasis here is on temporary and those are the sorts of measures we have in mind."

In its official statement on the UK economy, the IMF mission states:

"Fiscal easing measures...should focus on temporary tax cuts and greater infrastructure spending, as these may be more credibly temporary than increases in current spending."


The report said the weak recovery indicated that the process of unwinding pre-crisis imbalances was likely to be more protracted than previously anticipated, partly because of the difficulty of getting credit.

Start Quote

She [Christine Lagarde] said that the choice between deficit reduction and growth was a false one and called on Europe to boost growth by structural reforms, not by spending more”

End Quote

It said that output remained more than 4% below its pre-crisis peak, and that unemployment at 8.2%, with a large number of young people without a job, was still "much too high".

But the report said that the UK had made "substantial progress" towards achieving a more sustainable budgetary position and reducing fiscal risks.

Ms Lagarde, gave a strong endorsement to the government's actions: "The gain that resulted from the fiscal consolidation that was decided two years ago has been that result, the credibility of the UK government and its ability to borrow at extremely favourable rates.

"Sometimes you feel like you could look back and wonder 'what if?'. And when I think back myself to May 2010, when the UK deficit was at 11% and I try to imagine what the situation would be like today if no such fiscal consolidation programme had been decided... I shiver."

The Chancellor, George Osborne, welcomed the IMF's findings: "The IMF couldn't be clearer today. Britain has to deal with its debts and the government's fiscal policy is the appropriate one and an essential part of our road to recovery.

Christine Lagarde speaks to the BBC

"They [the IMF] agree that, in their words 'reducing the high structural deficit remains essential' and make clear in their statement that they consider the current pace of fiscal consolidation to be appropriate."

But the shadow chancellor, Ed Balls, said: "A year ago, the IMF warned that if economic growth undershot expectations, the government should boost the economy with temporary tax cuts and greater infrastructure spending - as Labour has called for in our five-point plan for jobs and growth.

"Since then our economy has been pushed into a double-dip recession. How much worse do things have to get before David Cameron and George Osborne finally take action?"


Pointing to what it called the "global importance" of the UK's financial centre, the IMF report praised policies that had helped to build up capital "buffers" at banks, and the strengthening of regulation within the UK.

The IMF recently forecast UK growth of 2% in 2013.

The global body's revised UK forecasts now match those of the UK's independent Office for Budget Responsibility.

But both are more optimistic than most independent UK economists, who expect economic growth of about 1.6% next year.


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  • rate this

    Comment number 708.

    @673.Kenneth Galea
    More people have a 100k+ mortgage then even 10k in savings so more will benefit from low interest rates.

    If you have lots of savings then do something with it! Invest in a startup company, help a family member get on the property ladder. Keeping your money in a bank account is not prudent.

  • rate this

    Comment number 707.

    Come on George and Mervyn, swallow your collective male pride and accept some very good and helpful advice for a very able and capable woman. I only wish that Mme Lagarde had control of the B of E and the Exchequer. Things would be much better for us all I'm sure and if they aren't THEN you CAN blame the French for all of our problems but with some justification ;-)

  • rate this

    Comment number 706.

    Education and investment, come rain or shine, you cut these at your peril.
    Successive Governments have taken the 'easy' money from the financial sector for far too long. Encourage Business style banks and family style business investment and in 5 or 6 years’ time we will have options at least.
    The country is drowning and debating Austerity vs Growth stimuli is merely describing the water.

  • rate this

    Comment number 705.

    680. A Seditious Malcontent Correct. There are lots of ways the government could get money to the people but alas they buy Chinese rubbish. The day British people wake up and refuse to buy it from China is the day things will rebalance. Hate to say it but the French do just that to a much larger degree. A behavioral change by half the population in only 3 months would have an amazing affect.

  • rate this

    Comment number 704.

    No matter what is done it will benefit some people and harm others. Take the low interest rates for example:

    I pay a very low mortgage rates, which means I have more money to save/spend. My parents (both nearing retirement) have had to watch their pensions and investments half over the last few years.

    Who's to say which group is more deserving?

  • rate this

    Comment number 703.

    The banks wont lend to small business , the wages are too low in many jobs in the private sector, supermarkets workers retail and factorys and many others you cant spend ,what you haven got The bills keep going up week on week , no easy credit anymore and the government cuts have not started to hit the public sector ,police cuts social cuts and many more big cuts to come

  • rate this

    Comment number 702.

    Just watching this Ms Lagarde on the news and jeez, does she make me angry. Look at the state of european finances and banking systems - basket cases if ever, and she has the AFFRONT to lecture the UK, pushing for ludicrous measures like more printed money and even lower rates. Lunacy. What have the low rates and money printing done for us? Nothing except bashing people dependent on savings..

  • rate this

    Comment number 701.

    "Sorry, but Labour and tax cuts just don't go together. They are like opposite poles of a magnet - they repell each other. History (and science) have taught us that."

    Science taught me that the opposite poles of a magnet are attracted to each other. The same polarity repels. Did you stop listening in science class because you disagreed with the teachers point of view?

  • rate this

    Comment number 700.

    The government should invest in the country (I'm thinking the energy business would be a good place), not in international banks who refuse to pass along interest rates near the 0.5% they enjoy and yet still can't manage their debts.

    Have dinner with the nice IMF lady Cameron, but don't sign up to anything.

  • rate this

    Comment number 699.

    8 Minutes ago
    .....The Government should nationalise them today....
    Good idea but no chance.. the last government effectively did this (Northern Rock and others) and then this lot of fools sold it to a rich mate at a £2bn. loss, and left, guess who.. us, to pick up the shortfall.
    Utter lunacy. God help us.

  • rate this

    Comment number 698.

    How about the IMF gives the UK the £Billions back that we have donated to it?
    I'm sure we could use it to nicely boost to the economy and then they'd be happy.

  • rate this

    Comment number 697.

    All measures have been tried to greater or lesser degree before without lasting effect only the bankers have gotten richer and this as a reward for their incompetence and recklessness with the ordinary person's money into high risk investments strategies that have yielded ruin. As always the little guy pays for what the big shots get away with. To them banking is a casino game.

  • rate this

    Comment number 696.

    646. farkyss you say: "Keynesian Economics is a fraud with only one benefacting group: Global banks and the NWO elite etc blah blah"

    You are another one who has been fooled into thinking Keynesian economics are being used. Stop being a parrot.

  • rate this

    Comment number 695.

    Seems to me that everyone has run out of ideas and going round in circles..
    The UK is at the same point as it was a few years ago, all the financial experts spew the same old mantra borrow less, cut interest rates, more QE.
    It hasn't worked, must be time for a fresh approach, some new thinking prehaps

  • rate this

    Comment number 694.

    My heart bleeds for all those mortgage holders whilst base rate stands at 0.5%. They ought to have tried buying in the mid-'70s, like me, then they'd really have known what monthly outgoings were like over the course of a mortgage.

    Don't forget either that cutting rates will reduce the income of people who rely on interest payments; we'll have even less disposeable income.

  • rate this

    Comment number 693.

    684.Sir Algernon Frayed Cuffs

    As a slightly distressed nobleman, I think the government should do more to help the people who voted for them, It will shock you to hear, but my wine cellar is almost empty and Lady Frayed Cuffs has to miss Ascot this year...It's not on.
    May I respectfully suggest sir that you go jump in your duck pond.

  • rate this

    Comment number 692.

    We don't need Madam Legard, we've got the financial wizard Ed Balls and his lovely assistant Yvette to learn from. Just look how much they increased their personal wealth via house flipping (three separate properties in two years) and nothing to pay (at least by them) now that's what I call fiscal propriety. Come on George, get Ed to show you how we could get someone else to pay our debts!

  • rate this

    Comment number 691.

    Well as I say there is an annual review and frankly I would not imagine that the BoE makes descisions without any consultation of the Treasury. Interesting thought you have on the MPC but personally I wouldn't let any PM or for that matter an economist anywhere near a descision making body!

  • rate this

    Comment number 690.


    Err.. just remind me who gave Fred the Shred Goodwin a knighthood for detroying RBS.
    Don't forget about the gold.....yawn.

    Cameron and Brown were both fawning sickeningly over the success of the deregulated bank industry even as the meltdown had begun.

    The twits in power shelved the IBC recommendations.

    Pointless inter party prattling is irrelevant.

  • Comment number 689.

    All this user's posts have been removed.Why?


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