By Simon Miller

The International Monetary Fund (IMF) has warned the UK that it needs to prepare a 'plan B' as the recovery stalls.

In its economic update, the IMF said that post-crisis repair and rebalancing of the UK economy was likely to be more prolonged than initially envisaged.

It added: “Confidence is weak and uncertainty is high. Looking ahead, the economy is expected to grow modestly, but with current policy settings, the pace will be insufficient to absorb significant slack in the economy, raising the risk of a permanent loss of productive capacity.”

The fund said more expansionary demand policies would close the output gap faster and recommended further quantatitive easing and even a further cut in the policy cut could be required.

It added that the credit easing measures announced in June were welcomed but may need to be expanded and further public investment should be examined.

The IMF continued: “The planned pace of structural fiscal tightening will need to slow if the recovery fails to take off even after additional monetary stimulus and strong credit easing measures. The UK has the fiscal space to make such adjustments.”

It also said further steps were needed to fortify financial sector stability as “such stability is critical to anchor a strong and durable recovery in the UK and is also of global systemic importance”.

The IMF recommended that bank balance sheets should be strengthened through building capital rather than reducing assets and that “too big to fail” issues should be addressed, including by legislating reforms proposed by the Vickers Commission, resisting pressure to reduce their effectiveness.

Home     More News

Financial Risks Today Beta Banner

Other stories you may find of interest:

Fencing off the risk?
The Independent Commission on banking has set the cat among the pigeons with the recommendation to ring-fence retail operations. Simon Miller looks at how this came about and what unintended consequences could arise

Holding out for a debt restructure
Greece stands before a default abyss but, as Simon Miller discovers, before it rushes to restructure, there are litigating risks from international trade treaties to consider

Moody's downgrades German banks as EC seeks bank solution
German and Austrian banks have been downgraded by Moody's Investors Service as the European Commission unveils proposals for failing banks today (06.06.2012).

This website is a part of Perspective Publishing Limited, registered in England No 2876166.