So what's up? First, this is an Article IV report from the IMF and, as such, it has to be "agreed" with the government. So it’s not really independent – this format limits how honest it can be, and vastly expands the ability of the government to get in a line it can spin to the newspapers. But, even then, this report is pretty clear that UK banks still need more capital - i.e. another bailout could be on the cards. It makes clear that Britain’s borrowing may yet end in tears:“
"The UK government response to the global financial crisis has been "bold and wide-ranging," adding that "aggressive action" by the government succeeded in containing the crisis and avoiding a breakdown.
And warns the Bank of England that it’s playing a dangerous game by using the money it’s printing to pay about a third of the government’s monthly bills:“
“The sharp increase in public sector borrowing and contingent government liabilities, together with continued financial sector fragility, are significant vulnerabilities.”
It also warns that the Treasury had best come up with a plan to CUT debt – the current plan shows debt rising ever-upwards, even after the coded plans for a 7% spending cut between 2011-14:“
“The public’s confidence in the Bank of England’s operational independence remains contingent on the stability of public finances. This puts a premium on a path of fiscal policy that restores sustainability.”
The word “faster” is a bit of a euphemism as the 09 Budget didn’t plan any reduction in debt. The whole thing is a coded trashing of the 2009 Budget for its abject failure to show any way out of this mess. The IMF calls for a “a more ambitious medium-term fiscal adjustment path” – which is geek-speak for saying “can somebody come up with a plan to get the UK out of this mess Brown has led it into?”“
“Targeting a more ambitious medium-term fiscal adjustment path for implementation once the economic recovery is established. The focus of this adjustment profile should be to put public debt on a firmly downward path faster than envisaged in the 2009 Budget.”
And CoffeeHousers will remember Darling's fictional trampoline recovery in Budget 09 - growth of a heroic 3.5% a year, for three consecutive years. Well, the IMF don't quite see it that way. They say the UK "economic recovery is expected to be subdued and gradual as banks and households go through a difficult balance sheet restructuring process."
And why is that process necessary? Because Brown presided over a credit bubble, which led to an asset bubble, which he wrongly labelled "prosperity" and asked us all to cheer for him. Or as the IMF puts it, there is:
"...particular exposure of the UK economy to global shocks because of its large financial sector relative to the size of the economy, overheated property markets, high household indebtedness, and strong cross-border links"
Sure, the UK is not (yet) Iceland – but with debt rising at the rate indicated by our Coffee House clock, we’re far from out of the woods. This makes more sobering reading for the Tories as the words “medium-term” mean “the next government”. And, effectively, “the pain has just started.”
P.S. Brown has a placeman in the IMF as we found out when he got it to pull its report saying the banking crisis would cost the UK £190bn. So who is it? I suspect we’ll have to wait until his resignation honours to find out.