Just what is a UK government supposed to do to keep the IMF happy? This morning it has issued a bulletin predicting that the UK will be the only major economy to shrink in 2023 – by 0.6 per cent – and blaming it on ‘tighter fiscal and monetary policies’. This represents an even-bleaker outlook than the IMF foresaw in October, when it pencilled in growth of just 0.3 per cent.
Yet this is the same IMF which last September condemned Kwasi Kwarteng’s mini-Budget for slashing taxes, saying 'given elevated inflation pressure in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy'.
So are we supposed to have tax cuts or tax rises, spending cuts or spending rises? It is little use looking to the IMF for guidance. This was, after all, the same organisation which, a week before the 2016 EU referendum, warned that Britain faced a two year recession with the economy falling by 1.9 per cent (if it opted for a Norway-style deal and remained in the single market) and 5.5 per cent (if it relied on trade under WTO rules). House prices, it warned, would fall sharply. In the event, the economy continued growing until felled by Covid in 2020, and house prices continued to grow until last year.
It is possible, reading between the lines, to devise a course of action for the UK economy which could, just perhaps, please the IMF. It was particularly critical of untargeted help with energy bills, as manifested in Liz Truss’s Energy Price Guarantee, which was predicted could cost up to £120 billion when it was announced last September.