The International Monetary Fund says the UK recovery has stalled over the last three quarters but that its current fiscal and monetary policies remain appropriate.
The findings come as the IMF recognises that the UK’s position as a “key node in the global financial system” makes it just as capable of delivering global economic shocks as it is of continuing them.
Referring to the UK’s underwhelming growth rate, Ajai Chopra, the deputy director of the IMF’s European department, expresses confidence that the recent, disappointing results will prove temporary.
Chopra predicts UK growth to reach around 2.5 per cent in the medium term, in line with consensus estimates.
The pace of recovery will be moderate, however, as the UK continues to struggle with elevated inflation and high unemployment.
“Headwinds from fiscal consolidation, a soft housing market and the ongoing process of household and bank balance sheet repair continue to weigh on growth,” says Chopra.
These risks to growth are seen as balanced by the current macroeconomic policy. Equally, “the mix of tight fiscal and accommodative monetary policy” will help by means of keeping real interest rates low and sterling competitive.
Ceyla Pazarbasioglu, the assistant director of the IMF’s monetary and capital market department, also warns that work to overhaul the financial regulatory infrastructure should not divert attention from recent efforts to enhance financial sector supervision.