IMF says hope for best, plan for worst
On the face of it, George Osborne comes out of the IMF's annual health check better than the UK economy does. But there are some politically resonant caveats.
Last autumn, IMF staff thought the UK was "on the mend". Today's more sober assessment is that the "post-crisis repair of the UK economy is underway".
The next few sentences are the ones that the chancellor will be most happy with.
"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."
That sounds like a resounding rejection of any resort to Plan B. I didn't come to a special press conference at the Treasury expecting to hear anything different.
However, the growth forecast for 2011 has been revised down. Again.
They now see growth of 1.5% this year, down from 1.7% only two months ago, and 2% last autumn. And that, in the IMF's view, is not without consequences.
In last year's report, the IMF was very clear that Mr Osborne needed some careful contingency plans up his sleeve. That message is underscored in red ink in the latest update.
The authors of the report do not think a prolonged slowdown is the most likely scenario, but they think it is a risk which could prove very damaging to Britain's long run potential. (For all the reasons I've discussed many times - the longer people are unemployed the harder it is for them to get back into the labour market, and the more likely it is that companies now just hanging on will go bust.)
For all these reasons, the IMF says that in the face of a prolonged weakening in the economy, the government should not only allow the fiscal stabilisers to "operate freely", but also consider a combination of "(i) expanded asset purchases by the Bank of England and (ii) temporary tax cuts".
As Mr Osborne was at pains to remind us on the Today programme this morning, permitting some overshoot of the borrowing targets as a result of weaker growth is part of Plan A - even if they didn't like to talk about it too loudly (heaven knows why).
The borrowing forecasts for the next 5 years have already gone up by a cumulative £46bn since November.
Looser monetary policy is also in Plan A - indeed, it is the part Mr Osborne talks about most. But temporary tax cuts - politically, at least - would surely be Plan B territory, even if the government would argue that the plans for reducing the "structural" piece of the deficit remained unchanged.
Impeccable sources have told me there was considerable concern among senior IMF economists last year at the pace of the coalition's plans to cut the deficit.
However, political negotiations at the highest level meant that these concerns did not get expressed in public. The organisation has publicly endorsed the government's strategy ever since and today is no exception.
But the IMF's own research, for last year's autumn World Economic Outlook, has also suggested that Mr Osborne's plans were likely to have a significant effect on growth in the short-term.
The risk - spelled out in today's report - has always been that this short term cost will turn out to be permanent, because capacity gets lost forever.
To repeat, the IMF does not think that this has happened yet.
Today's report says that the government's policies are broadly right. It explicitly rejects the advice offered by some economists in Sunday's Observer.
But the Fund does clearly believe that the chancellor should have a wider range of back-up plans than he has so far been willing to own up to.