The tone of the study was largely positive, praising the ‘impressive’ economic performance of the UK, and the ‘favourable’ long-term outlook.
However, most national newspapers highlighted the IMF’s forecast of slower real GDP growth in 2005 (2.5 to 2.75%), which is at odds with Gordon Brown’s pre-Budget report predictions of three to 3.5%.
The IMF recommended ‘measures to close the gap vis-…-vis the PBR forecast’, which the papers took to mean tax rises after the General Election.
Certainly, the study said that ‘the efficiency of spending and revenue collection needs to remain under close review’. And that ‘the fiscal position deteriorated substantially in recent years, and questions are emerging about how and when the necessary correction will take place’.
The IMF recommended that a ‘broadening the tax base would be preferable to raising tax rates, given potential adverse effects on supply’ and that ‘moving ahead expeditiously with this mild fiscal adjustment’ was desirable while the economy was strong and could absorb the move.
In praise of the government, the study said that the strong UK economy owed its success to ‘strong institutions underpinned by clear and well-designed policy frameworks’.
However, a report in The Daily Telegraph said that the IMF had criticised the chancellor at its conference in Washington in October, raising doubts that his borrowing rules could be met.
Furthermore, an economic advisor to Deloitte, Roger Bootle, was reported in the paper as saying he was surprised by the IMF’s volte-face and that the report was a poor reflection of the economy.
‘These things tend to be highly politicised and the outcome of protracted negotiation,’ he said.
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