Announcements from the International Monetary Fund are worded in such a way that everyone reading them comes away with something slightly different. So shortly after today’s report on the UK economy was released, Ed Balls put out a statement saying the report was a ‘very serious warning to the Chancellor that urgent action to boost jobs and growth is needed’. He concluded his press release by asking ‘how much worse do things have to get before the Chancellor finally changes course?’.
Now, today’s report from the IMF is not cheery reading for George Osborne. It passes this bleak judgement on the economy:
‘Recovery has stalled. Post-crisis repair and rebalancing of the UK economy is likely to be more prolonged than initially envisaged. Confidence is weak and uncertainty is high. Looking ahead, the economy is expected to grow modestly, but with current policy settings the pace will be insufficient to absorb significant slack in the economy, raising the risk of a permanent loss of productive capacity.’
For one thing, the report says Osborne could miss his target of having net debt as a share of GDP falling by 2015/16. And for another it repeats the warning it issued in May that the government will need to slow the pace of cuts if growth continues to stall and unemployment does not fall in early 2013. It says:
‘In particular, fiscal adjustment for FY13/14 would need to be scaled back if growth does not build momentum by early 2013. Current plans envisage structural adjustment accelerating from ½ per cent of GDP in FY12/13 to nearly 1½ per cent of GDP in FY13/14. Such an acceleration may be difficult for the economy to handle if it remains very weak. The planned pace of fiscal tightening may need to ease before FY13/14 if the outlook deteriorates sharply before then.’
In that quote lies the answer to Balls’ question of ‘how much worse do things have to get’ before Treasury ministers adopt the Plan B he has been urging on them. The IMF isn’t saying the Chancellor needs to change course now, although its report is not exactly encouraging. If Ed Balls wants to know when the Chancellor is likely to change course, it’s next year, if growth is still not forthcoming. He may well be correct that the Chancellor isn’t following the right path on the economy (although his own route would hardly lead the economy beside still waters), but he’s wrong to say the IMF is calling for an urgent change of course right now.
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