Positive IMF report claims UK economy is 'on the mend'

THE BRITISH government, which is set to unveil dramatic spending cuts next month in the face of opposition from the Labour Party and trade unions, has been given the backing of the International Monetary Fund (IMF).

The fund has predicted that the reductions will not force the economy back into recession and should safeguard the UK’s standing on international financial markets.

“The UK economy is on the mend,” said the IMF in an unusually positive set of conclusions.

“Economic recovery is under way, unemployment has stabilised and financial sector health has improved. The government’s strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability.

“The plan greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery.”

Economic recovery was under way, it went on, although it added that this would proceed “at a moderate pace as the economy undergoes a difficult but necessary rebalancing” once the measures to cut the £155 billion annual deficit over five years came into force later this year or early next year.

Households were “likely to remain thriftier” than before the 2007 financial crisis, although the IMF said confidence would be gradually raised as job prospects improved.

However, Labour, meeting in Manchester yesterday, heard multiple warnings that the cutbacks to come would cost hundreds of thousands of public jobs and would not replace them with private jobs.

Cutting the deficit should begin immediately, said the IMF, since the Bank of England would be able to pump money into the economy to soothe difficulties, while sterling’s drop in value over the last couple of years should yield extra export sales, not just higher margins.That had been the case up to now, added the IMF, which sent a team to the UK to speak with senior figures in politics and business.

UK growth rates should run at 2 per cent next year, rising to 2.5 per cent in the years afterwards. This is a small reduction in the IMF’s previous prediction for 2011, when it put growth at 2.1 per cent.