6 Jun 2014

Treasury excitement after IMF thumbs-up for UK austerity

It’s official: Britain’s recovery is real. So says the IMF in its annual MOT of the economy. Published today. George Osborne will take further comfort from the fact that, not only does the fund believe growth is strong, and has momentum, but that his austerity policies can be justified.

For the past two years the IMF has added its voice to growing calls for a “Plan B” – echoed in government by the Lib Dems’ Vince Cable. But this year the austerity measures – equivalent to half a per cent point of GDP – are considered “appropriate”. Treasury officials at this morning’s press conference were leaping around like excited pixies in response.

Nevertheless the communique points out that the risks to growth remain the same ones that have dogged the UK, and partly got us into this mess: low productivity and our tendency to blow bubbles in the housing market.

“If productivity remains flat,” says the fund, “growth will eventually stall”. And the south east house price boom prompts a warning that households and the wider economy are open to shocks once interest rates start to rise – which may be needed sooner rather than later. The fund wants the Bank of England to enforce new limits on mortgage lending, again sooner than later.

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