## Transcript of a Press Conference on the International Monetary Fund’s 2012 Article IV Consultations with the United Kingdom

_IMF News, May 22, 2012_

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## Bibliographic details
- Published: May 22, 2012

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### IMF assessment and mission background
- The Article IV mission involved "more than seven members" on a "two-week mission" spending "ten days, roughly" meeting multiple stakeholders to check numbers, confront views, and debate policies.
- The IMF finds the UK policy mix has reinforced credibility amid global uncertainty and regards the government’s fiscal policy as "an essential part of our road to recovery."
- The IMF welcomed the UK authorities’ "contribution of additional lending to the IMF resources" and thanked UK authorities for cooperation with the mission.

### UK economic position (as described by Chancellor Osborne and IMF)
- Inflation: reported as "falling from 3.5 percent to 3 percent" and "within 1 percent of the Bank of England’s target."
- Unemployment: "has also fallen this month, but it remains too high."
- Fiscal consolidation: IMF considers "reducing the high structural deficit" essential and judges "the current pace of fiscal consolidation to be appropriate."
- The UK has a "flexible exchange rate" and "an independent monetary policy" allowing easing of fiscal adjustment with a lower exchange rate and supportive monetary policy.
- The IMF identifies "setbacks in the Euro Area as the key risk to the UK’s economic prospects and financial stability."

### Fiscal policy findings and recommendations
- The IMF supports the UK’s fiscal consolidation plan, noting the "pace of structural adjustment this year of half a percent of GDP is below the annual average 2-percentage point pace in the two previous years."
- Quality of fiscal adjustment can be improved through "budget neutral shifts towards more infrastructure spending and measures to shield the poor."
- Conditional recommendation: "If the economy turns out to be significantly weaker than forecast, fiscal easing should be considered." Any such easing should:
  - "focus on supporting growth and encouraging employment,"
  - be "temporary" and targeted to maximize multipliers (e.g., temporary VAT cuts or payroll contributions), and
  - make use of the government's favorable borrowing terms to "utilize the government’s balance sheet" to lower funding costs and facilitate credit to SMEs, households, housing, and infrastructure.

### Monetary policy and credit-support measures
- The IMF encourages "further monetary easing" given "underlying inflation pressure is weak" and expects easing to be "consistent with inflation returning to the 2 percent target."
- Quantitative easing measures "could be resumed" and there is "room in terms of interest rates" to support demand.
- On boosting demand through credit, the IMF recommends designing schemes that:
  - use the government balance sheet rather than Bank of England alone carrying the risk,
  - have the Bank of England act "as agent of the government to purchase private sector assets,"
  - draw on prior UK experience ("SLS, the CGS") and be tailored to UK circumstances.

### Eurozone risks and IMF view on European policy options
- The IMF acknowledges improvements in euro-area governance, the expanded firewall decided "on the 30th of March," and ECB policy actions (expanded collaterals, interest rate cuts, long-term refinancing).
- The IMF believes "more needs to be done, particularly by way of fiscal liability sharing" and continued support for growth through structural reforms.
- The IMF’s clear preference for stability is that program implementation in Greece be endorsed by post-election authorities; the IMF will also examine "all possible technical options and all possible alternatives" should implementation fail.

### Financial sector stability and regulation
- The UK underwent a "financial sector assessment last year" and progress has been made on implementing recommendations; work remains on "systemically important financial institutions."
- The IMF emphasizes "the importance of robust regulation and supervision for a global financial hub such as the UK."

### Q&A highlights on forecasts, thresholds, and Greece
- Forecasts and recession language:
  - The IMF does not focus on preliminary two-quarter numbers and notes official statistics are often revised; its latest forecast "does not mention recession" for 2012 and the IMF will be "revisiting our forecast ... in July of 2012."
- On thresholds for fiscal easing: no fixed numerical trigger was provided; action should be considered "at a time when [growth] falls significantly below forecast" and is "country-specific."
- Tax-cut options discussed as temporary measures with higher multiplier effects; specific examples cited: cutting "the value-added tax" or "payroll contributions."
- Greece:
  - The IMF’s preference is continued implementation of the program and engagement with democratically elected governments; the IMF "never leaves the table."
  - The IMF notes substantial past fiscal consolidation in Greece but stresses that "there is still work to be done" including implementation of structural reforms and improved tax collection.
- Timing and sequencing:
  - The IMF emphasized the importance of policy mix (fiscal and monetary) and acknowledged that the UK’s decelerated consolidation—"half a percentage point of GDP this year" versus "2-percentage point pace in the two previous years"—was appropriate given circumstances.

*Transcript of a Press Conference on the International Monetary Fund’s 2012 Article IV Consultations with the United Kingdom; May 22, 2012.*

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## References

- [United Kingdom and the IMF](http://www.imf.org/external/country/GBR/index.htm)
- [Greece and the IMF](http://www.imf.org/external/country/GRC/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Transcripts](https://www.imf.org/en/news/searchnews)
- [United Kingdom—2012 Article IV Consultation Concluding Statement of the Mission](https://www.imf.org/external/np/ms/2012/052212.htm)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Webcast](https://www.imf.org/external/mmedia/view.aspx?vid=1650668218001)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/54/tr052212_