## Transcript of IMF Managing Director’s Questions and Answers on the 2021 UK Article IV and Financial Sector Assessment Program Concluding Statement _IMF News, December 15, 2021_ ## Source details **Canonical URL:** [Transcript of IMF Managing Director’s Questions and Answers on the 2021 UK Article IV and Financial Sector Assessment Program Concluding Statement](https://www.imf.org/en/news/articles/2021/12/15/tr12152021-transcript-md-on-the-2021-uk-article-iv-and-fsa-program-concluding-statement) ## Other formats - [Markdown version](/en/news/articles/2021/12/15/tr12152021-transcript-md-on-the-2021-uk-article-iv-and-fsa-program-concluding-statement/index.md) - [Structured JSON version](/en/news/articles/2021/12/15/tr12152021-transcript-md-on-the-2021-uk-article-iv-and-fsa-program-concluding-statement/index.json) - [Bundle manifest](/en/news/articles/2021/12/15/tr12152021-transcript-md-on-the-2021-uk-article-iv-and-fsa-program-concluding-statement/bundle-manifest.json) ## Bibliographic details - Published: December 15, 2021 --- ### Omicron, inflation, and near-term monetary policy - IMF projects UK inflation will pick up to five and a half percent in 2022. - Supply-chain disruptions are estimated to have a cost of about one percent for inflation this year; additional disruptions from Omicron could add to inflationary pressure. - Alternative channel: if Omicron reduces mobility and consumer confidence, the effect could be disinflationary; net impact remains uncertain and requires weeks of epidemiological and economic data for a clearer assessment. - Managing Director: Bank of England needs to "calibrate the response" taking into account inflationary pressures and risks to growth; recent Bank decisions described as exercising "sound judgment." - Projection on inflation trajectory: after peaking at five and a half percent, inflation is expected to recede to two percent by the end of next year and early into the following year. ### Economic impact of Omicron and policy deployment - Known characteristics: Omicron is highly transmissible; evidence on severity and hospitalization impact is mixed across locations. - Three central unknowns to monitor: - Impact on mobility and resulting restrictions. - How fiscal and other policy space should be deployed depending on severity. - Degree to which supply chains will be further interrupted. - Policy guidance: - Prioritize vaccinations globally and domestically to support higher economic functioning. - Use targeted fiscal support proportional to the degree of restrictive measures; full lockdowns like 2020 are considered "highly unlikely" given vaccination, testing, tracing, masks, and social distancing. - Maintain agility in policy and calibrate support to vulnerable people and firms if more restrictive measures affecting contact‑intensive sectors become necessary. ### Vaccination goals and global economic stakes - IMF-endorsed vaccination targets: vaccinate 40 percent of the population in our countries by the end of this year, and vaccinate 70 percent by mid-next year. - Current status: progress has improved since earlier months, with upticks even in low-income countries, but in "too many places" the 40 percent target will not be met. - Economic gains from mass vaccination: IMF states that massive global vaccination would produce between now and 2025 additional output of five point three trillion dollars and a "very significant increase in tax revenues." - Cost of failing to vaccinate: continuing COVID impacts could result in a loss of way over five trillion dollars between now and 2025. - Policy recommendation for surplus vaccine stocks (UK): do not hold excess doses; send extra vaccines abroad to help curb the pandemic. ### UK medium-term growth, scarring, and labor market - IMF estimate: UK GDP will settle to about two to two and a half percent below the pre-pandemic trend. - Scarring estimates: - One year prior: estimated scarring in the range of four to five percent. - Current estimate: two to two and a half percent (an improvement and halving of prior scarring estimates). - Contributing UK-specific factors noted: - Measurement/accounting issues in UK GDP. - Tightness in labor markets and improved labor market participation; uncertainty over the relative roles of the pandemic versus Brexit. - Higher share of contact‑intensive services in the UK economy, making it more exposed to post-pandemic effects. - Recommendation: pursue medium-term fiscal consolidation via a careful, step‑by‑step approach while retaining agility to respond to downside risks. ### Living standards, wages, and inflationary pressures - Observations: - Prices are rising faster than wages in the UK, contributing to a living standards concern. - In the United States, tight labor markets are generating wage pressure, particularly in low‑skilled segments; this has secondary inflationary effects. IMF sees less of this wage‑driven inflation in the UK currently, but it remains important to monitor. - Policy stance: - Protect living standards through well‑targeted policies. - Ensure continued emphasis on vaccinations, testing, tracing, surveillance, and expanded treatments to support both health and economic confidence. - Monitor global supply‑demand interruptions, which IMF expects to continue into 2022. ### Brexit assessment and trade effects - IMF view: - Adjustment to Brexit is an ongoing process; it is too early to assess the full economic impact. - Pandemic complicates separation of Brexit effects from pandemic-driven supply chain and labor disruptions. - Trade with the EU has dropped significantly; more impacts may follow as new specifics are introduced. - Some low net migration reflects pandemic effects; the extent attributable to Brexit versus pandemic remains to be determined. - Global supply‑chain issues (energy prices, microprocessors) are not UK‑EU specific and should not be attributed meaningfully to Brexit. ### Financial Sector Assessment Program (FSAP) findings and recommendations - Systemic assessment: - Since the 2016 FSAP, the UK banking and insurance system appears "vastly better" on capital, leverage, and solvency metrics. - The UK financial stability framework established after the global crisis "is working" and has appropriate instruments and international credibility. - Key risks and gaps identified: - Growth and materiality of internationally active non‑banking financial activity (large non‑bank sector) warrant urgent attention. - Data gaps exist for non‑bank activities and need to be plugged. - The perimeter of surveillance by the Financial Policy Committee should be broadened; bring the Financial Conduct Authority into a more direct role in financial surveillance. - Multiple simultaneous transitions—LIBOR transition, crypto, technology, climate, Solvency II insurance reform—create complex interactions that require focused attention. - Brexit and regulatory standards: - No evidence found of dilution or divergence from international regulatory standards due to Brexit to date; the UK has largely transposed inherited standards. - Brexit increases the UK's autonomous responsibility in managing financial policies and offers opportunities (e.g., Solvency II review) to tailor frameworks to UK needs. - Policy recommendations: - Strengthen data collection and surveillance perimeter to cover non‑bank financial intermediation. - Maintain focus on financial stability amid overlapping transitions and global interconnections. - Use FSAP practical advice to monitor effectiveness of green finance policies and integrate climate risks into risk management. ### Green finance and London’s role - Strengths noted for the UK/London: - Leadership in green policies and issuance of a green bond. - Advanced sustainable disclosure requirement framework and use of sustainable investment labels. - Adoption of G20 Principles for Sustainable Finance Classification in market practices. - IMF advice: - London is "ahead" but must prudently implement and monitor green finance policies to stay competitive. - FSAP provides encouragement and practical advice on monitoring effectiveness and integrating green policies into risk management. *Transcript of IMF Managing Director’s Questions and Answers on the 2021 UK Article IV and Financial Sector Assessment Program Concluding Statement* --- ## References - [https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva](https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva) - [United Kingdom and the IMF](http://www.imf.org/external/country/GBR/index.htm) - [United States and the IMF](http://www.imf.org/external/country/USA/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [Financial Sector Assessment Program (FSAP)](https://www.imf.org/external/np/fsap/fsap.aspx) - [Transcripts](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/2021/12/15/tr12152021-transcript-md-on-the-2021-uk-article-iv-and-fsa-program-concluding-statement_