The IMF sees a lot of worse cases than the UK economy. The summary of their report starts positively, recording “some improvement in economic and financial conditions.” They praise the strong private sector employment growth and forecast some increase in activity this year.
The IMF is on an ideological journey. Under its latest Euro friendly management it wishes to detach itself from the old IMF formula of cutting public spending, raising taxes, loosening money supply and devaluing for countries with large public sector and balance of payments deficits. After all, Euro member states cannot undertake the monetary expansion nor the devaluation for themselves, the two most pro growth parts of a traditional IMF package.
They want the UK to “rebalance”, to export more and invest more. The shortfall in private sector investment has several causes. Weak banks with insufficient loans available do not help. Large pension deficits created by artificially low interest rates force companies to keep more cash on their balance sheets to meet future pension costs. Falling demand in Euroland undermines one of our export markets and leads companies to wonder if more capacity is a good idea.
They praise the loose money policy being followed and ask that it continue. Indeed they want the Bank to buy more of its own bonds and promise to keep interest rates very low for longer. They want the banks to raise more capital, and want the government to sell RBS and Lloyds back to the private sector. The Chancellor in his public statements seems happy to oblige.
The IMF also favours cutting corporation tax more and paying for revenue loss by further property taxes and VAT on a wider range of items. Did they not follow pastygate? Their tax recommendations are toxic. I cannot see why people take their advice so seriously, when they seem to be all at sea in this crisis, and did not foresee any of it.