–Clarifies Report At 1500GMT To Show IMF Confirms 2011 GDP Forecasts
–IMF Forecasts UK 2011 GDP At 1.5% vs 1.75% Seen In April
–IMF Forecasts UK 2012 GDP Forecast Unchanged At 2.3%
–IMF Forecasts UK Q4 2011 CPI at 4.5% vs 4.2% seen in April
–IMF Forecasts UK 2011 Unemployment at 7.7% vs 7.8% seen April
—

LONDON (MNI) – The International Monetary Fund confirmed its
forecast for UK GDP growth in 2011 at 1.5%, the same as announced in its
preliminary Article IV forecasts released on June 6, but down from the
1.75% seen in its April World Economic Outlook, according to its final
Article IV Consultation paper.

This marks the IMF’s second downward revision of the UK’s 2011
growth forecast, with the fund warning that the country’s economic
recovery had stalled in recent month amid high inflation and
‘unacceptably high’ unemployment.

The IMF also said that the government should loosen macroeconomic
policy if the UK is heading for a prolonged period of weak growth.

“Implementation of a wide-ranging policy program is underway,
aiding the post-crisis repair of the economy. However, the recovery
stalled over the last several months, inflation remains elevated, and
unemployment is still unacceptably high,” the IMF said.

Although Britain’s coalition government resolutely refuses to
entertain the idea of a shift in macroeconomic policy, the IMF warned
that the UK should loosen policy in the event of a demand shock to the
economy.

“Policy flexibility will be essential to respond to shocks, with
the appropriate response depending on the nature of the shock. For
example, if there is mounting evidence that weak demand is likely to
cause the economy to stall and enter a period of prolonged low growth
and subdued inflation, a significant loosening of macroeconomic policies
will be required,” the IMF said.

In a note accompanying the report, IMF mission chief for the UK
Ajai Chopra elaborated on those remarks, saying that he advocated a mix
of further quantitative easing and temporary tax cuts if growth remained
anaemic.

“If such a scenario appears to be in prospect, we recommend
responding quickly with some combination of further quantitative easing
by the Bank of England and temporary tax cuts,” Chopra wrote.

But the IMF also said that despite significant headwinds, both the
Treasury and the Bank of England should not change their plans at
present.

“The inflation overshoot is driven largely by transitory factors,
and hence maintaining the current scale of monetary stimulus is
appropriate given fiscal adjustment and subdued wage growth. This
macroeconomic policy mix will also assist in rebalancing the economy
toward sustainable growth led by investment and external demand,”the IMF
said.

The IMF has left its 2012 growth forecast at 2.3%, implying that
the lower output envisaged in 2011 will not be recouped the following
year.

–London newsroom 0044 207 862 7491; email:ukeditorial@marketnews.com

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