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IMF warns of resource risk in UK shake-up

The International Monetary Fund has backed the Government’s proposed move to more intrusive prudential regulation but is warning that the shake-up should not divert resources from supervision.

Under the plans, the Prudential Regulation Authority will take over the FSA’s prudential work from January 1, 2013.

Last month, the FSA and the Bank of England published joint proposals for a proactive intervention framework, which separates firms into five stages depending on their risk of default.

In a statement on the UK economy, published this week, the IMF says: “The plan to introduce a Pif for the PRA that increases in intensity on the basis of the seriousness of the problem is welcome and the establishment of the Financial Policy Committee is an important step in developing mechanisms to mitigate systemic risk.

“The transition requires careful management and should not divert resources and attention from efforts to enhance supervision of the financial sector, which is still in recovery mode.”

The IMF concluded that no changes to UK economic policy are currently needed, saying recent weak growth figures and high inflation are “unexpected and temporary”.

But it adds that the eurozone crisis, the housing market and commodity prices pose “large risks” to growth and inflation. It says if these risks intensify, public policy should change to accommodate them.

It says it expects growth to improve in the medium term but the “essential” fiscal consolidation will create headwinds for short-term growth and it has cut its growth forecast for the UK for 2011 to 1.5 per cent, down from its November forecast of 2 per cent.Bloomsbury Financial Planning partner Jason Butler says: “Our economy is in a hole and although we do not like the pain, getting out of it quickly is better than dragging the problems out.”

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