## 2017 UK Article IV Press Conference: Opening Remarks by IMF Managing Director Christine Lagarde

_IMF News, December 20, 2017_

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## Bibliographic details
- Published: December 20, 2017

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### Introduction
- Remarks delivered at the conclusion of the IMF’s annual Article IV consultation with the UK.
- Acknowledgement of the UK authorities’ active engagement in the consultation process.
- Recent major developments: voters’ decision to withdraw from membership in the European Union and the government’s decision to invoke Article 50.
- Note: UK not expected to leave the EU until 2019.

### Economic Outlook
- Global forecast from last October: 3.6% growth this year, and 3.7% next year.
- UK-specific developments since May of last year:
  - Significant depreciation of sterling following the referendum has pushed inflation over 3 percent, squeezing real incomes and private consumption.
  - Companies are delaying some investment decisions until they have greater clarity about post-Brexit trade rules.
- GDP growth projections and recent comparators:
  - Projected GDP growth of 1.6 percent this year.
  - Down from 1.8 percent last year and 2.3 percent in 2015.
  - Growth is projected to remain around 1½ percent next year, as uncertainty about the shape of Brexit persists and inflation remains above target.

### Fiscal Policies
- Progress and current fiscal position:
  - Significant progress made in reducing the deficit since the global financial crisis.
  - Public debt remains high, at 87 percent of GDP.
- Policy recommendation:
  - Continued deficit reduction is critical to create further room to respond to future shocks.
- Long-term fiscal pressures:
  - Population aging expected to lead to material increases in spending on health care, pensions and long-term care.
  - Productivity growth has been slow.
  - A slowly growing economy implies fewer resources to meet increased spending.
- Risks:
  - Challenges may worsen if trade barriers further reduce productivity.
  - Future difficult decisions may be required about the size of the public sector and the mode of delivery and financing of public services.

### Structural Reforms
- Role: Structural reforms are important for raising productivity.
- Identified gaps:
  - UK goods and labor markets are very competitive, but the UK underinvests in infrastructure and innovation and falls short in human capital development.
- Recent government initiatives praised:
  - Increasing public sector investment.
  - Reforming technical education.
- Further recommended reforms:
  - Easing planning restrictions.
  - Reforming property taxes to boost housing supply.

### Monetary Policy
- Stance:
  - Agreement with the Bank of England that tightening should proceed at a gradual pace.
- Rationale:
  - Gradual tightening will return inflation to target as the impact of the depreciation of sterling fades.
- Conditional recommendation:
  - A faster rate of tightening may be called for if low unemployment results in too rapid wage growth.

### Financial Sector
- Status of banks:
  - UK banks have strengthened steadily since the financial crisis and are in a far better position today with respect to capital, leverage and liquidity.
- Preparations for Brexit:
  - Primary responsibility for readiness lies with banks and other financial institutions themselves.
  - UK authorities have been proactive in engaging with institutions to ensure they are well-prepared.
- Cross-border cooperation:
  - Given the complexity of the UK financial system and its high degree of global integration, continued close cross-border regulatory and supervisory cooperation between the UK, EU and other relevant authorities is essential to manage risks.

### Brexit Negotiations
- Progress welcomed:
  - Recent progress in UK–EU negotiations allows discussions to move to issues related to the future trading relationship and a transition period.
- Policy position:
  - The ultimate decision on the form of the UK–EU relationship is for the UK and EU to decide.
  - An agreement that minimizes the introduction of trade barriers and allows adequate time to implement changes would best support stability and growth.
- Tasks and challenges identified:
  - Negotiating a new trade deal with the EU.
  - Creating domestic capacity to take over new responsibilities.
  - Negotiating new trade arrangements with about 60 countries to replace those that came with EU membership.
  - Translating many thousands of pages of EU law into UK statutes.
- Recommendation on transition:
  - Encourage the UK and EU to reach agreement soon on transitional arrangements that would apply for a period after the UK’s departure to provide households and firms with greater confidence toward the March 2019 exit date.
- Additional details:
  - More details and recommended policies are contained in the mission’s Concluding Statement.

### Closing
- Invitation to questions.

*International Monetary Fund — Opening remarks delivered December 20, 2017*

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## References

- [Christine Lagarde](https://www.imf.org/en/About/senior-officials/Bios/christine-lagarde)
- [United Kingdom: Staff Concluding Statement of the 2017 Article IV Mission](https://www.imf.org/en/news/articles/2017/12/19/mcs122017-united-kingdom-staff-concluding-statement-of-the-2017-article-iv-mission)
- [United Kingdom and the IMF](http://www.imf.org/external/country/GBR/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2017/12/20/sp122017-2017-uk-article-iv-press-conference-opening-remarks-by-managing-director_