The damning new report from the International Monetary Fund makes it clear that the UK recovery has stalled and will prove to be a major blow to Chancellor George Osborne, especially following the downgrading of forecasts for growth in the UK economy to just 0.2%.
The stark warning from the IMF is Plan A isn’t working and they appear to have given the Government until Christmas to change course.
The report says that the post-crisis “re-balancing” of the UK economy is “likely to be more prolonged than initially envisaged. Confidence is weak and uncertainty is high”.
In fact the rebalancing of the economy, despite a variety of announcements by the Governments on investment initiatives in manufacturing – which will have to be the powerhouse of any recovery – is still a long way off.
The IMF report is stark reading. It says that the economy is expected to “grow modestly”, but the pace will be insufficient to absorb significant slack in the economy, raising the risk of a “permanent loss of productive capacity”.
The IMF says there is a need to boost demand through additional monetary stimulus via quantitative easing and the planned pace of structural fiscal tightening will need to slow if the recovery fails to take off even after additional monetary stimulus and strong credit easing.
The report contains much “IMFspeak” and an abundance of graphs – but the warnings are clear enough for even Osborne to understand: “Demand support is needed. More expansionary demand policies would close the output gap faster and reduce the risk of hysteresis. The planned pace of structural fiscal tightening will need to slow if the recovery fails to take off even after additional monetary stimulus and strong credit easing measures.
The fact is that the IMF point out that there has been no recovery and the current austerity policies are shrinking the UK economy to the tune of £37.5bn over the last two years.
There is still much gloom around – at a meeting I attended this week with ministers and leading industrialists a number of speakers made it clear that intervention and help for manufacturing companies was still not forthcoming in anywhere near the levels needed.
Representatives of SME’s are bitterly complaining at the lack of help from the banks and there is concern that any recovery could be hit by companies going bust as the economy recovers due to lack of funds to invest to take advantage of any upturn.
As the TUC’s Brendan Barber said this week of the IMF report’s authors: “These are the Chancellor’s favourite economic experts”.
It’s time for Cameron, Osborne and Clegg to listen to them for a change and change course – and not leave it until Christmas.
This updated blog appeared on the Centre For Labour And Social Studies site on 20th July.