The IMF Board considered the annual surveillance of the UK economy barely 2 weeks ago, and the associated report was published even more recently. And a couple of days after that, its main findings about fiscal policy — trumpeted by George Osborne during the visit — are effectively dead. Here’s what the Fund says (page 10) —
Relative to the last pre-election budget (March 2015), the authorities’ latest fiscal plans as announced in the 2015 Autumn Statement envisage a smoother path of deficit reduction. Consolidation is also now based somewhat less on spending cuts than previously projected, partly due to revised revenue and interest expenditure projections and new revenue measures. The consolidation path is appropriate in the baseline scenario. Continued consolidation is needed to rebuild buffers, thereby allowing more aggressive countercyclical policy during the next recession.
Similar language is peppered throughout the report. The problem is now out in the open in that Osborne used a G20 trip to Shanghai and a linked interview with the BBC’s Laura Kuenssberg to confirm what had been obvious to analysts for a long time: the revenue, growth, and modeling assumptions underlying the Autumn Statement cannot be met.
Imagine if an African country finance minister uncorked a worse economic scenario than he’d told the Fund just weeks after their visit!