The IMF has published its verdict on Britain – who it may very well be bailing out in the next couple of years – and a suspiciously warm phrase is up there, and being singled out by government spin doctors:
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.”
“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.