Fraser Nelson Fraser Nelson

In between the lines

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:

“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.

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 sharp increase in public sector borrowing and contingent government  liabilities, together with continued financial sector fragility, are significant vulnerabilities.”

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 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.”

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:

“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.

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