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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Who will win the Copeland by-election?

Labour face a tricky task in holding onto the seat. 

What’s the Copeland by-election about? That’s the question that will decide who wins it.

The Conservatives want it to be about the nuclear industry, which is the seat’s biggest employer, and Jeremy Corbyn’s long history of opposition to nuclear power.

Labour want it to be about the difficulties of the NHS in Cumbria in general and the future of West Cumberland Hospital in particular.

Who’s winning? Neither party is confident of victory but both sides think it will be close. That Theresa May has visited is a sign of the confidence in Conservative headquarters that, win or lose, Labour will not increase its majority from the six-point lead it held over the Conservatives in May 2015. (It’s always more instructive to talk about vote share rather than raw numbers, in by-elections in particular.)

But her visit may have been counterproductive. Yes, she is the most popular politician in Britain according to all the polls, but in visiting she has added fuel to the fire of Labour’s message that the Conservatives are keeping an anxious eye on the outcome.

Labour strategists feared that “the oxygen” would come out of the campaign if May used her visit to offer a guarantee about West Cumberland Hospital. Instead, she refused to answer, merely hyping up the issue further.

The party is nervous that opposition to Corbyn is going to supress turnout among their voters, but on the Conservative side, there is considerable irritation that May’s visit has made their task harder, too.

Voters know the difference between a by-election and a general election and my hunch is that people will get they can have a free hit on the health question without risking the future of the nuclear factory. That Corbyn has U-Turned on nuclear power only helps.

I said last week that if I knew what the local paper would look like between now and then I would be able to call the outcome. Today the West Cumbria News & Star leads with Downing Street’s refusal to answer questions about West Cumberland Hospital. All the signs favour Labour. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.