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IMF: No changes to economic policy needed

The International Monetary Fund has concluded no changes are currently needed from UK economic policy saying recent weak growth figures and high inflation were “unexpected”.

The IMF’s says in its statement on the UK economy’s annual assessment that post-crisis recovery is underway but that there are future risks to the recovery which could need a policy response.

It says: “The weakness in economic growth and rise in inflation over the last several months was unexpected. This raises the question whether it is time to adjust macroeconomic policies. The answer is no as the deviations are largely temporary.”

It adds that the Eurozone crisis, the housing market and commodity prices poses “large risks” to growth and inflation and that if these risks materialise public policy should change to accommodate them.

It says fiscal consolidation will create “headwinds” for short term growth and has cut its growth forecast for 2011 to 1.5 per cent, down from its November forecast of 2 per cent, adding it expects growth to improve in the medium term.

It adds that further accelerating increases to the state pension age and and public sector pension reform proposed by the Hutton Commission will help redress longer term fiscal imbalances and encourage medium term growth.

F&C global strategy director Ted Scott says: “While the report regarded the austerity measures as ‘’essential’’ to the well being of the economy it was less optimistic than last autumn when it reported the UK economy was ‘’on the mend’’. It pointed to the risks of the contagion effects of the Eurozone debt crisis, rising oil prices and potential weakness in the housing market. Although the economic fiscal consolidation policy has been created and implemented by the Government, its previous support by the IMF and other international agencies as well as credit rating bodies was a factor in its design to restore confidence in the UK’s economy, currency and debt. Therefore, the IMF is unlikely to abandon ship quite yet although by adding a few caveats about the nature of the economic recovery it has laid the ground to be more critical next time if the economy continues to slow.”

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