The IMF has no credibility in forecasting the UK economy

George Osborne has, in effect, already resorted to Plan B, because his policies are not working.

Yesterday, the IMF cut its 2011 growth forecast for the UK to 1.5 per cent but said that the government's economic policy was going along swimmingly. The Chancellor seemed to be really pleased about this endorsement. But Slasher didn't seem to notice that the IMF argued that the risks to their forecasts were "significant".

Sadly, the UK economy did not grow at all over the past six months. Consumer confidence has collapsed; business confidence is weakening; employment growth has slowed sharply; house prices are falling and the number of mortgage approvals is falling; business lending is down and there remain real risks of deflation, which I guess John Lipsky, acting head of the IMF, hasn't spotted. Over the weekend, 50 economists did spot the problem and wrote to the Observer about it. The Cabinet Office's ex-chief economist Jonathan Portes and Vicky Price, ex-head of the Government Economic Service, warned that the economy was slowing, as did Tim Besley and John Muellbauer, who had previously signed a letter in the Times supporting the government's now failing strategy. The new economics Nobel laureate, Chris Pissarides, who was also a signatory to the Times letter, also told me in an exclusive interview published in the New Statesman this week that his preferred action now is for a postponement of fiscal contraction. Growth is nowhere to be seen and the government has no plan to fix this.

The Chancellor's claim that his strategy was always flexible because of the use of automatic stabilisers amounted to an announcement of Plan B. As growth slows and unemployment rises, as it surely will, then the payments to unemployment benefits in particular start to rise. This is plainly an announcement that the speed at which the deficit is paid off will inevitably have to be slower than he had previously announced, because his policies are not working -- as I have frequently warned.

Plus, if, or more likely when, the economy starts declining further, the government would have to cut taxes and do more quantitative easing. Hence Vince Cable, Osborne and now the IMF have endorsed Adam Posen's and my long-held views: that there is a possiblity of a slow, Japanese-type recovery, hence the need for another round of asset purchases: ie Plan C.

I was particularly interested to look back to 6 August 2008, when the IMF also lowered its growth forecast for the UK economy.

The IMF predicted that the UK would grow by 1.4 per cent in 2008 and 1.1 per cent in 2009, down from the 1.8 per cent for 2008 and 1.7 per cent for 2009 that it predicted in of 2008. It said inflation at 3.8 per cent was higher than expected and inflation expectations were rising, even as economic activity was slowing. That, the IMF said, meant the Bank of England had little room to cut rates. It didn't exactly turn out that way. In August 2008, the IMF didn't even spot that the UK economy had entered recession in April that year. The IMF has no credibility in forecasting the UK economy.

Osborne has already turned, as the economy is slowing even before the public spending cuts hit. The government's economic strategy is in disarray, no matter which of Osborne's pals he gets to say otherwise.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Donald Trump vs Barack Obama: How the inauguration speeches compared

We compared the two presidents on trade, foreign affairs and climate change – so you (really, really) don't have to.

After watching Donald Trump's inaugural address, what better way to get rid of the last few dregs of hope than by comparing what he said with Barack Obama's address from 2009? 

Both thanked the previous President, with Trump calling the Obamas "magnificent", and pledged to reform Washington, but the comparison ended there. 

Here is what each of them said: 

On American jobs

Obama:

The state of our economy calls for action, bold and swift.  And we will act, not only to create new jobs, but to lay a new foundation for growth.  We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.  We'll restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost.  We will harness the sun and the winds and the soil to fuel our cars and run our factories.  And we will transform our schools and colleges and universities to meet the demands of a new age.

Trump:

For many decades we've enriched foreign industry at the expense of American industry, subsidized the armies of other countries while allowing for the very sad depletion of our military.

One by one, the factories shuttered and left our shores with not even a thought about the millions and millions of American workers that were left behind.

Obama had a plan for growth. Trump just blames the rest of the world...

On global warming

Obama:

With old friends and former foes, we'll work tirelessly to lessen the nuclear threat, and roll back the specter of a warming planet.

Trump:

On the Middle East:

Obama:

To the Muslim world, we seek a new way forward, based on mutual interest and mutual respect. To those leaders around the globe who seek to sow conflict, or blame their society's ills on the West, know that your people will judge you on what you can build, not what you destroy. 

Trump:

We will re-enforce old alliances and form new ones and unite the civilized world against radical Islamic terrorism, which we will eradicate completely from the face of the earth.

On “greatness”

Obama:

In reaffirming the greatness of our nation we understand that greatness is never a given. It must be earned.

Trump:

America will start winning again, winning like never before.

 

On trade

Obama:

This is the journey we continue today.  We remain the most prosperous, powerful nation on Earth.  Our workers are no less productive than when this crisis began.  Our minds are no less inventive, our goods and services no less needed than they were last week, or last month, or last year.  Our capacity remains undiminished.  

Trump:

We must protect our borders from the ravages of other countries making our product, stealing our companies and destroying our jobs.

Protection will lead to great prosperity and strength. I will fight for you with every breath in my body, and I will never ever let you down.

Stephanie Boland is digital assistant at the New Statesman. She tweets at @stephanieboland