{
  "title": "United Kingdom—2013 Article IV Consultation Concluding Statement of the Mission",
  "publication": "IMF News, May 22, 2013",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs052213",
  "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs052213",
  "overlayPath": "/en/news/articles/2015/09/28/04/52/mcs052213/index.md",
  "summary": "Describes the preliminary findings of IMF staff at the conclusion of certain missions (official staff visits, in most cases to member countries).",
  "publishDate": "2013-05-22",
  "sections": [
    {
      "heading": "Activity and outlook",
      "content": "- Recent indicators show improvement: purchasing indicators, demand for vehicles, and consumer and business sentiment surveys indicate an uptick in activity.\n- Private sector employment growth has been notably strong.\n- Per capita income remains 6 percent below its pre-crisis peak, making this the weakest recovery in recent history.\n- Capital investment (as a share of GDP) is at a postwar low; youth unemployment is high.\n- The most likely scenario is a prolonged period in which output is below potential (similar to the Office for Budget Responsibility).\n- Risks tilted to the downside:\n  - Persistent slow growth could permanently damage medium-term prospects if private deleveraging is larger than expected, credit conditions fail to improve, external demand does not pick up, or the drag from fiscal consolidation is greater than anticipated.\n  - Weak euro-area growth and potential re-emergence of market tensions could cause spillovers via depressed exports, higher bank losses and funding costs, and reduced confidence."
    },
    {
      "heading": "Policy priorities and challenges: restoring strong and balanced growth",
      "content": "- Restoring growth momentum and rebalancing the economy is vital to:\n  - restore incomes,\n  - ensure sustainability of public debt,\n  - restore bank balance sheets,\n  - diversify the economy away from reliance on domestic consumption.\n- Both supply- and demand-side measures are needed to raise long-term expectations of potential growth and transform the economy toward higher investment and more exports.\n- A coordinated multi-pronged strategy is required given constraints: monetary policy at the zero bound, impaired bank balance sheets, and rising public debt with consolidation weighing on growth."
    },
    {
      "heading": "Monetary policy: maintain accommodative stance",
      "content": "- Actions taken:\n  - Bank of England cut policy rates, made substantial purchases of gilts, and introduced the Funding for Lending Scheme (FLS) jointly with the Treasury.\n  - The March 2013 Budget reaffirmed the 2 percent inflation target and permitted unconventional policies; it requested the Bank to explore thresholds to guide policy.\n  - The FLS was modified to encourage lending to SMEs and its term extended.\n- Effectiveness and transmission:\n  - Transmission of accommodative policy has been weak: credit flows remain negative overall; some retail rates for unsecured lending remain higher than pre-crisis.\n  - Funding rates, lending spreads, and surveys suggest both supply and demand factors are limiting credit flows.\n- Recommendations:\n  - Monetary policy should remain accommodative for an extended period given the persistent output gap.\n  - Consider further gilt purchases and provide assurance that policy rates will be kept low until recovery reaches full momentum.\n  - Enhance monetary effectiveness through complementary measures: strengthen bank health, and adopt fiscal and structural measures to boost long-term income expectations."
    },
    {
      "heading": "Financial policy: resolve the uncertainty over banks",
      "content": "- Current position:\n  - Financial sector repair has advanced: funding is more assured and regulatory capital ratios continue to edge up.\n  - Non-performing assets remain elevated at some major banks; underlying profitability is weak.\n  - Concerns include lender forbearance, under-provisioning for risky assets and conduct costs, and aggressive use of risk-weights.\n- Actions needed to restore lending:\n  - Following the Asset Quality Review, the PRA is identifying capital shortfalls to meet an equity capital ratio of at least 7 percent (on a fully-loaded Basel III basis) by end-2013, plus any additional bank-specific requirements.\n  - Banks should build capital (new equity issuance), reduce dividend payouts, restrain remuneration, and restructure balance sheets without reducing net lending.\n  - The planned 2014 system-wide stress test should cover a broad range of risks, use sufficiently stringent scenarios, and be anchored in supervisor-approved capital plans; transparency on methodology, results, and bank-by-bank capital plans is important.\n- Strategy for government-intervened banks:\n  - RBS and LBG together account for two-fifths of the stock of UK net private sector lending.\n  - A clear strategy is needed to return these banks to private ownership in a way that maximizes taxpayer value, strengthens confidence and competition, and minimizes spillovers.\n  - If a sovereign backstop is required to meet a capital shortfall, it should be provided, as this would have a high multiplier."
    },
    {
      "heading": "Fiscal policy: bring forward growth initiatives while preserving the fiscal framework",
      "content": "- Fiscal track record and outlook:\n  - The government set out discretionary deficit reduction measures of about £130 billion from FY 2010/11 to FY 2015/16; more than half of those measures have been implemented.\n  - The government has shown flexibility: slowed structural consolidation, allowed automatic stabilizers to operate, and public sector net debt is forecast to fall in 2017-18 (two years later than the Supplementary Debt Target).\n  - Several growth-supportive measures have been introduced, including increases in personal tax allowances and reductions to corporate tax rates; guarantees have been used to provide support.\n- Near-term headwinds:\n  - Discretionary measures for this fiscal year amount to £10 billion, posing headwinds to growth amid domestic deleveraging and weak external demand.\n- Policy trade-offs and recommendations:\n  - Balance debt sustainability with growth: further consolidation risks permanent loss to productive capacity, but lack of consolidation risks debt accumulation.\n  - Capitalize on nascent momentum to bolster growth through measures that address supply constraints and provide near-term support.\n  - In the current context (underutilized labor and cheap funding), net returns from growth-enhancing measures are likely favorable.\n- Growth-enhancing initiatives to consider within the medium-term framework:\n  - Bring forward planned capital investment where possible to catalyze private investment; use well-designed public guarantees to facilitate private investment.\n  - Modify the composition of consolidation to boost growth, e.g., reduce marginal effective corporate tax rates and introduce tax allowances for raising equity; offset medium-term budgetary impact by reforming property taxes and considering broadening the VAT base.\n  - The 2013 Budget’s Help To Buy scheme may temporarily boost housing-market confidence but risks raising house prices absent supply response; mitigate by considering fiscal disincentives for holding land without development.\n- Credibility:\n  - Government investment in supply-side measures will enhance, not damage, credibility given the UK’s commitment to medium-term consolidation, the Office for Budget Responsibility’s credibility, and long-duration debt."
    },
    {
      "heading": "Structural policies: the essential pillar for long-term rebalancing and prosperity",
      "content": "- Structural reforms recommended (drawing on LSE Growth Commission, Heseltine Review, and government initiatives):\n  - Provide retraining, including vocational training, for low-skilled workers to transition to high value-added, high-wage work; reform immigration policy to improve skills and competitiveness.\n  - Invest in infrastructure (transport and energy) by streamlining planning processes and removing regulatory uncertainty; devolve more planning authority to local authorities and provide financial incentives via greater revenue sharing.\n  - Reduce concentration in the banking sector to better serve firms and households and expand funding options for start-ups and smaller enterprises."
    },
    {
      "heading": "Financial regulation: clarity and consistency",
      "content": "- Transition to the “twin peaks” regulatory and supervisory structure has been well managed, but:\n  - Ensure greater coordination between the Financial Policy Committee (FPC) and the Prudential Regulation Authority (PRA), especially around the 2014 stress tests, to reduce regulatory uncertainty.\n  - Ensure the PRA’s operational independence and adequate resourcing for intrusive supervision of globally-systemic institutions to minimize adverse spillovers.\n- Toolkit and international coordination:\n  - Expand the FPC’s toolkit, including powers to limit loan-to-value and loan-to-income ratios, as higher capital requirements alone may be insufficient to restrain property bubbles.\n  - Internalize cross-border spillover effects when applying macroprudential tools to enhance resilience of globally-active banks.\n  - Coordinate structural banking reforms internationally and address gaps: the efficacy of ring-fencing relies in part on progress toward robust cross-border supervisory and bank resolution frameworks and attention to regulatory arbitrage and migration of activity to shadow banks and non-banks.\n\nUnited Kingdom—2013 Article IV Consultation Concluding Statement of the Mission (May 22, 2013).\n\n---\n\n\n References\n\n- United Kingdom and the IMF\n- Mission Concluding Statements\n- PRESS CENTER\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/52/mcs052213"
    }
  ],
  "bullets": [
    "[Markdown version](/en/news/articles/2015/09/28/04/52/mcs052213/index.md)",
    "[Structured JSON version](/en/news/articles/2015/09/28/04/52/mcs052213/index.json)",
    "[Bundle manifest](/en/news/articles/2015/09/28/04/52/mcs052213/bundle-manifest.json)",
    "Published: May 22, 2013",
    "Recent indicators show improvement: purchasing indicators, demand for vehicles, and consumer and business sentiment surveys indicate an uptick in activity.",
    "Private sector employment growth has been notably strong.",
    "Per capita income remains 6 percent below its pre-crisis peak, making this the weakest recovery in recent history.",
    "Capital investment (as a share of GDP) is at a postwar low; youth unemployment is high.",
    "The most likely scenario is a prolonged period in which output is below potential (similar to the Office for Budget Responsibility).",
    "Risks tilted to the downside:",
    "Restoring growth momentum and rebalancing the economy is vital to:",
    "Both supply- and demand-side measures are needed to raise long-term expectations of potential growth and transform the economy toward higher investment and more exports.",
    "A coordinated multi-pronged strategy is required given constraints: monetary policy at the zero bound, impaired bank balance sheets, and rising public debt with consolidation weighing on growth.",
    "Actions taken:",
    "Effectiveness and transmission:",
    "Recommendations:",
    "Current position:",
    "Actions needed to restore lending:",
    "Strategy for government-intervened banks:",
    "Fiscal track record and outlook:",
    "Near-term headwinds:",
    "Policy trade-offs and recommendations:",
    "Growth-enhancing initiatives to consider within the medium-term framework:",
    "Credibility:",
    "Structural reforms recommended (drawing on LSE Growth Commission, Heseltine Review, and government initiatives):",
    "Transition to the “twin peaks” regulatory and supervisory structure has been well managed, but:",
    "Toolkit and international coordination:",
    "[United Kingdom and the IMF](http://www.imf.org/external/country/GBR/index.htm)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
  ],
  "alternates": {
    "markdown": "/en/news/articles/2015/09/28/04/52/mcs052213/index.md",
    "json": "/en/news/articles/2015/09/28/04/52/mcs052213/index.json",
    "bundleManifest": "/en/news/articles/2015/09/28/04/52/mcs052213/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-26T23:50:28.072Z"
}