The International Monetary Fund has come out in broad support of the UK government’s stance on cutting the deficit as the mainstay to the country’s economic problems.


There is also agreement with the governor of the bank of England’s view that the current inflationary pressures are only temporary in nature and driven by transitory factors.

In the first paragraph if the statement it asks the question ‘whether it is time to adjust macroeconomic policies’ to which it says ‘no’.

The IMF said that growth had been flat for two years but that we should return to a ‘moderate’ GDP growth of 1.5% this year (a cut from last year’s assessment of 2.5%), which would eventually rise to 2.5% over the medium term.

The report does say though that inflation will remain above 4% for most of 2011 before gradually returning to the 2% target. It lays the blame for this temporary rise in inflation at the doors of spiking commodity prices and rises in indirect taxation.

The statement also stated the obvious in saying that ‘the recovery process is not yet complete’.

Overall the report seems to approve of the directions the Financial Services Authority (FSA) and the new Financial Policy Committee (FPC) would be taking but did say that the UK was lagging behind other countries with regard to standards for the public disclosure of bank and insurance sector data.

The IMF also said that although progress had been made on the too big to fail problem, more work was needed and highlighted such measures as more tax reforms that would ‘reduce incentives for excessive leverage’.

This statement is viewed by many as unsurprising given that the British government and the IMF are both advocates of cost cutting to solve economic problems.

And if inflation persists and growth does not increase then the Chancellor would soon start sweating.

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