Osborne was right, admits the IMF

The International Monetary Fund (IMF) has “declared peace with Britain in its long-running dispute over austerity” by accepting that the chancellor’s deficit-reduction programme was “appropriate” and praising George Osborne’s plan for being “well-balanced”, says Philip Aldrick in The Times.

A year ago, the IMF urged the chancellor to raise spending to boost growth and warned that he was “playing with fire” on economic policy; advice he “duly took exception to” and ignored, says Chris Giles in the Financial Times. The IMF has since upgraded its 2014 forecast three times over the past year, from 1.5% to 2.9%.

It’s not the first time the IMF’s suggestions have “fallen by the wayside”, says Juliet Samuels in The Times. In 2012 and 2013, it controversially called for George Osborne to borrow more to fund infrastructure investment. Last year, it proposed that Britain should expand the range of products subject to VAT.

It may not seem so, but “more often than not”, chancellors are delighted to receive tough advice from the IMF during its annual economic inspections, says Giles. It “chimes with their arguments within government and provides cover for them to attack domestic vested interests”.

Last year, for once, the popular narrative of the IMF rapping the government on the knuckles only for ministers to fight back, held good. But that does not mean we should disdain the IMF’s advice this year.

It’s all very well to demand a “grovelling apology” for getting it wrong, but the IMF’s “traditional role in helping to frame a sensible economic debate for Britain’s future is far more important”.

Nor should we overlook the less nice things the IMF had to say, says Larry Elliott in The Guardian. Two major risks remain, in its view.

Firstly, that unless productivity starts to recover, growth with eventually stall. Secondly, to prevent another property boom-bust, pre-emptive action should be taken.

The IMF would like to see a limit on the number of high loan-to-income mortgages, and “politely suggested” that the government’s controversial £12bn Help to Buy mortgage guarantee scheme could be modified, or even shut down early.

Merryn

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