Yesterday, the International Monetary Fund (IMF) published a Public Information Notice (PIN) following its Article IV consultation with the U.K. The PIN set forth a brief summary of the IMF Executive Board's assessment of the U.K. economy, stating that, although "recent indicators suggest that economic activity has begun to stabilize," the "economic outlook is highly uncertain," and will depend on, "among other factors, the pace and extent of deleveraging of financial institutions’ and households’ balance sheets." The IMF Executive Board praised the U.K. authorities’ aggressive policy response to the financial crisis, which includes, among other actions, the government's £37 billion recapitalization investments in Royal Bank of Scotland and Lloyds Banking Group PLC last fall, and subsequent Asset Protection Scheme this past February, but still sees U.K. output shrinking by 4.25% in 2009, with "quarterly growth picking up gradually through 2010." Looking forward, the Executive Board stated that the "main policy priorities remain, first, resolving the problems in the financial system" and "second, setting monetary and fiscal policies consistent with a firm commitment to price stability and fiscal sustainability."
The IMF Executive Board (i) endorsed the proposed enhancement of liquidity regulation, the increased emphasis on identifying system-wide risks, and proposals for a Council for Financial Stability, as set forth in the Turner Review; (ii) suggested that the Bank of England "diversify" its private asset purchases; and (iii) "focus on putting public debt on a firmly downward path within a reasonable timeframe."