Today, the International Monetary Fund (IMF) issued a report at the conclusion of its 2010 "Article IV consultation" with the United Kingdom. Under Article IV of the IMF's Articles of Agreement, the IMF generally holds bilateral discussions with members every year where it conducts a review of its member countries’ economies as part of its work in monitoring the health of the global economy. The IMF's report noted that generally the United Kingdom’s economy is steadily recovering, but emphasized that the “UK government’s strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability.” While fiscal tightening may impede short-term growth, the IMF report noted that it will not hinder other sectors of the economy from emerging “as drivers of recovery, supported by continued monetary stimulus.”
The IMF report also recognized that the UK government may face challenges in “promot[ing] a balanced and sustainable recovery while healing post-crisis scars,” although the successful implementation of “entitlement reforms” may help “cement long-term fiscal sustainability.” Such measures may include “bringing forward the planned increases in the statutory retirement age for state pensions and gradually aligning the generosity of public sector pensions with those for their counterparts in the private sector.” While the IMF report acknowledged that such measures may ultimately have a limited adverse effect on aggregate demand, the “yield significant fiscal savings over the long run” seek to boost the credibility of the [UK] government’s adjustment package."
The IMF report also recommended that UK financial regulatory authorities continue to build upon the framework of the recent Basel III and Financial Stability Board proposals and “secure an ambitious international package of regulatory reform and rigorous implementation of this package in the EU.”
The IMF concluded its report by noting that “steadfast fiscal adjustment, forward-looking monetary policy aimed at achieving the inflation target, and gradual implementation of strong financial sector reforms, economic fundamentals should strengthen and establish the basis for sustainable recovery” in the United Kingdom.
The IMF staff will conduct a comprehensive financial system stability assessment for the United Kingdom in 2011. This assessment, will be prepared pursuant to the IMF’s “Financial Sector Assessment Program” (FSAP) and will provide the IMF with an opportunity to further review key issues in the United Kingdom’s financial sector.