20 Jul 2012

Debt crisis: UK housing slump will deepen, warns IMF + The Bankster Doomsday Kit

By Despite sharp falls in property prices following the banking crisis, the IMF believes they are still too high and could drop by a further 10-15pc relative to Britons’ salaries.
The bleak forecast was part of a report by the IMF in which it urged the Government to ease austerity measures and deploy a ‘Plan B’ in early 2013 if economic recovery fails to materialise.
Britain’s recovery has stalled with no growth over the past two years, and the Coalition should prepare new growth policies or risk permanent damage to the economy according to the International Monetary Fund.
The IMF said that the British economy may not be able to cope with the scale of austerity planned for 2013-14. It argued in its latest staff report on the UK that the Government has room to relax its deficit cutting programme with targeted tax cuts and increased infrastructure spending should it prove necessary.
“In particular, fiscal adjustment for 2013-14 would need to be scaled back if growth does not build momentum by early 2013.
“Such an acceleration [of austerity] may be difficult for the economy to handle if it remains very weak.”
Ajai Chopra, the IMF’s deputy director of the European department, said the obvious time to address a shift in policy would be spring next year, when George Osborne presents his next Budget.

“[The Budget] would be the natural time to look at the state of the economy and policy responses,” he said.
Earlier this week the IMF slashed its forecasts for growth in Britain by a bigger margin than any other major economy and said yesterday that there were major risks to that outlook posed by the eurozone crisis. It expects the UK economy to grow by just 0.2pc this year, after forecasting 0.8pc growth just three months ago. It has cut its 2013 forecast to 1.4pc from 2pc. 


The IMF was hopeful that the Government’s “funding for lending scheme" and infrastructure funding guarantees would have a positive impact, but warned they might not be enough given the uncertain outlook.
“Slowing the pace of fiscal tightening would be the main policy lever to support demand if growth does not pick up sufficiently even after monetary stimulus and strong credit easing measures have been given time to work,” it said.
The IMF suggested there was little evidence to indicate fiscal easing would provoke a strong adverse reaction from markets: “The Government’s reduction of deficits over the past two years has created the space for recalibrating fiscal policy, if needed.”
It warned in its latest staff report on the UK that post-crisis repair and rebalancing of the ravaged economy would take longer than expected, echoing comments made the Prime Minister to The Daily Telegraph. David Cameron said he could not “see a time when difficult spending choices are going to go away.”
The Washington-based Fund said the Bank of England should consider a further reduction in interest rates and expansion of quantitative easing, but cautioned there was limited room left for significant easing of monetary policy.
Richard Koo, chief economist at Nomura Research Institute said that Britain’s balance sheet recession - characterised by a large scale retrenchment in consumer and business spending - must be addressed by fiscal stimulus, rather than “reckless” monetary easing that would have little effect.
The IMF said that according to its forecasts the Government would miss its target for public sector debt as a percentage of GDP to be falling in 2015-16 by one year. The Chancellor should not tighten fiscal plans to accommodate this, the IMF said.
A Treasury spokesman said: “The IMF have repeated their advice that Britain’s fiscal plans are appropriate, that we are right to support the economy through monetary and credit easing as well as government guarantees for infrastructure, and that the uncertainty and instability in the eurozone is the ‘overarching risk’ to the British economy.”

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