Crisis over for UK – but Eurozone has strong chance of recession, says IMF
Forget wages rising more slowly than inflation or lagging GDP per capita: the crisis is behind the UK, according to the International Monetary Fund (IMF).
Having disagreed with the medicine, the IMF seems now to recognise the current climate as a cure, despite concerns about living standards and spare capacity in the labour market.
Things aren't so rosy for the Eurozone though, the IMF now believes the single currency bloc has a four in 10 chance of going into recession.
The UK is forecast to have GDP growth of 3.2 per cent this year, slipping to 2.7 per cent next year according to the IMF's World Economic Outlook.
These rates are, however, faster than the long-term average and should remove some of the slack in the economy. The UK, the IMF’s chief economist Olivier Blanchard said, was leading the curve:
The US and the UK in particular are leaving the crisis behind and achieving decent growth.
Blanchard was highly critical of the UK government last year and qualified his praise, saying that the potential growth rate had declined significantly and was now lower than it had been in the early 2000s.
The IMF also noted that the productivity gap was high, despite unemployment having dropped to 6.2 per cent. The Bank of England should keep interest rates low a while longer, it said.
Chancellor George Osborne said the government would not deviate from his plan, reiterating what have long been mantras:
It’s particularly important that the IMF today not only highlight the risks to our recovery from the rest of the world but also warn that our hard-won fiscal credibility should not be put at risk, showing exactly why we must keep working through the long-term plan that is delivering a resilient economy and a brighter future.