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IMF urges UK to cut interest rates

by: Katie Holliday
  • 22/05/2012
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IMF urges UK to cut interest rates
The International Monetary Fund (IMF), headed by Christine Lagarde, has urged the UK to consider introducing more quantitative easing and cut interest rates.

The advice followed an annual assessment of the UK government’s plan to cut its deficit, deemed “essential” by the IMF, according to the BBC.

The IMF praised the UK for making “substantial progress” towards a more sustainable budgetary position and reducing fiscal risks. It alluded to the UK’s “global importance” and said its economic policies had helped build capital buffers and strengthen domestic regulation.

However, the assessment warned that, although monetary stimulus has benefitted the economy, the overall outlook remains weak. The body urged the Bank of England to reassess whether to cut rates below 0.5%.

The IMF also warned on several downside risks impacting the UK economy, including the eurozone crisis, but also the rebalancing of growth between the public and private sector.

The IMF’s forecast for UK growth in 2013 is 2%, higher than most independent UK economists who see growth of around 1.6%.

The body’s assessment follows the Organisation for Economic Co-operation & Development’s (OECD’s) warning on a contraction in UK household finances over the next 18 months as incomes rise more than inflation.

The international think-tank forecast the UK would only grow by 0.5% this year, down from 0.7%, and below the IMF’s forecast of 0.8% for 2012. It forecast 1.9% in 2013, downgraded from November’s 2.1% prediction.

It warned unemployment would peak at 9% in 2013, and voiced concern over the UK’s 20% youth unemployment rate.

The OECD’s warning on declining real incomes follows the governor of the Bank of England Mervyn King’s announcement in February that the squeeze on real incomes had come to an end, the Telegraph reports.

The think-tank blamed the squeeze on households on the weak economic outlook, but said growth should start to gain pace in the second half of this year.

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