IMF: Britain should consider "flexibility" in Plan A

"Consideration should be given to greater near-term flexibility in the fiscal adjustment path."

The IMF has cut its forecasts of UK GDP growth in 2013 and 2014 by 0.3 percentage points for each year, to 0.7 and 1.5 per cent respectively. The figure for 2013 is still 0.1pp above the OBR's own forecast for 2013, but where the OBR sees growth picking up rapidly – rising to 1.8 per cent in 2014, and then 2.8 per cent by 2018  the IMF is predicting a slower recovery.

The predictions come from the Fund's World Economic Outlook, its biannual publication looking at the global economic situation. Writing about the UK, the WEO says;

The recovery is progressing slowly, notably in the context of weak external demand and ongoing fiscal consolidation… Domestic rebalancing from the public to the private sector is being held back by deleveraging, tight credit conditions and economic uncertainty, while declining productivity growth and high unit labour costs are holding back much needed external rebalancing…
Consideration should be given to greater near-term flexibility in the fiscal adjustment path.

Merely calling for "consideration" to be given – rather than a demand for immediate "flexibility in the fiscal adjustment path" – provides an out, of sorts, for the Government. Expect to hear the chancellor confirming that he has "considered" the IMF's advice, but decided not to act on it, due to (something). Indeed, the FT cites Treasury sources already spinning the news, claiming the word choice "showed the fund was still sitting on the fence."

But as the Guardian reports, Oliver Blanchard, the Fund's Chief economist, did tell a press conference in the US today that:

The IMF would hold talks with the UK government in the coming months, to "see what can be done" about the pace of deficit reduction.
"In the face of very weak private demand it is time to consider adjustment to the original fiscal plan," Blanchard explained.

The WEO was more positive about the monetary side of the chancellor's record. Although it cautions that the Bank of England may find it hard to unwind the positions it has taken throughout four years of QE, which might force it to face significant trade-offs when it comes to fighting inflation in the future, it also praises the overall strategy of "monetary activism with fiscal responsibility and supply side reform".

That advice goes against the intervention of former MPC member Adam Posen, who today warned of the limits of Mark Carney's potential as Bank of England governor. But it gives Osborne enough cover to struggle on for a while longer.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

How Jim Murphy's mistake cost Labour - and helped make Ruth Davidson

Scottish Labour's former leader's great mistake was to run away from Labour's Scottish referendum, not on it.

The strange revival of Conservative Scotland? Another poll from north of the border, this time from the Times and YouGov, shows the Tories experiencing a revival in Scotland, up to 28 per cent of the vote, enough to net seven extra seats from the SNP.

Adding to the Nationalists’ misery, according to the same poll, they would lose East Dunbartonshire to the Liberal Democrats, reducing their strength in the Commons to a still-formidable 47 seats.

It could be worse than the polls suggest, however. In the elections to the Scottish Parliament last year, parties which backed a No vote in the referendum did better in the first-past-the-post seats than the polls would have suggested – thanks to tactical voting by No voters, who backed whichever party had the best chance of beating the SNP.

The strategic insight of Ruth Davidson, the Conservative leader in Scotland, was to to recast her party as the loudest defender of the Union between Scotland and the rest of the United Kingdom. She has absorbed large chunks of that vote from the Liberal Democrats and Labour, but, paradoxically, at the Holyrood elections at least, the “Unionist coalition” she assembled helped those parties even though it cost the vote share.

The big thing to watch is not just where the parties of the Union make gains, but where they successfully form strong second-places against whoever the strongest pro-Union party is.

Davidson’s popularity and eye for a good photo opportunity – which came first is an interesting question – mean that the natural benefactor in most places will likely be the Tories.

But it could have been very different. The first politician to hit successfully upon the “last defender of the Union” routine was Ian Murray, the last Labour MP in Scotland, who squeezed both the  Liberal Democrat and Conservative vote in his seat of Edinburgh South.

His then-leader in Scotland, Jim Murphy, had a different idea. He fought the election in 2015 to the SNP’s left, with the slogan of “Whether you’re Yes, or No, the Tories have got to go”.  There were a couple of problems with that approach, as one  former staffer put it: “Firstly, the SNP weren’t going to put the Tories in, and everyone knew it. Secondly, no-one but us wanted to move on [from the referendum]”.

Then again under different leadership, this time under Kezia Dugdale, Scottish Labour once again fought a campaign explicitly to the left of the SNP, promising to increase taxation to blunt cuts devolved from Westminster, and an agnostic position on the referendum. Dugdale said she’d be open to voting to leave the United Kingdom if Britain left the European Union. Senior Scottish Labour figures flirted with the idea that the party might be neutral in a forthcoming election. Once again, the party tried to move on – but no-one else wanted to move on.

How different things might be if instead of running away from their referendum campaign, Jim Murphy had run towards it in 2015. 

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

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