When the IMF published a report into the UK economy last year, I wrote
a blog post detailing how it managed to please everyone: George Osborne,
Vince Cable, Mervyn King, Ed Balls, everyone. This morning, I’ve been tempted to just publish that post again — because the IMF’s latest report is basically the same. Osborne will be pleased with its emphasis on deficit reduction, including the line that ‘Strong
fiscal consolidation is underway and reducing the high structural deficit over the medium term remains essential.’ And he’ll also want to draw attention to its suggestion that the
UK’s weak growth is largely down to ‘transitory commodity price shocks and heightened uncertainty following the intensification of stress in the euro area’. Cable will approve of
its warnings about ‘tight credit conditions’ and its calls for further credit easing. For Mervyn King, there’s praise for the ‘bold monetary stimulus’ that is low
interest rates and Quantitative Easing. And for Ed Balls there’s a consolatory paragraph about how ‘fiscal easing’ — which is to say, temporary tax cuts and spending
increases — may help if the economy doesn’t pick up after all. Like I say, there’s something in there for everyone.
But, really, the most significant thing about today’s report is its emphasis on monetary policy. It doesn’t just approve of Quantitative Easing and low interest rates — it calls
for more. And so, ‘Evidence suggests that QE can continue to support demand by lowering long-term interest rates and improving banks’ liquidity.’ And, ‘The Monetary Policy
Committee should also reassess the efficacy of cutting the policy rate below its current level of 0.5 per cent.’ Only if these don’t work, says the IMF, should the Chancellor then
consider loosening his fiscal consolidation, so to speak.
This is only one report, to be ignored or heeded as you like — but there’s something significant about it nonetheless. Seems to me that the IMF are tacitly acknowledging that, when it
comes to our economic recovery, it’s Mervyn who’s in charge. Which is fine: we at the Spectator have previously called QE the ‘most radical economic policy’ underway in
Britain today. But, as I’ve said before, it does raise questions about whether that policy
is being scrutinised properly.