Results from an assessment of the UK, conducted by the International Monetary Fund illustrate major risks to the UK’s economy even now. The IMF has predicted that the rate of economic growth in the UK will be less than expected at just 1.5%.
The IMF has supported the measures taken by the government to aid economic recovery on the grounds that they are suitable for the current circumstances the UK is in. Nevertheless, they have detected further problems which will require additional action to be taken such as the falling prices of houses.
It was expected that by 2012 growth would have increased to 2.5% and inflation would decrease to 2%. However, according to these results this is very optimistic. The IMF has warned that the combined influence of rising commodity prices, the eurozone crisis, the decreasing prices of homes and spending cuts will deter the economic growth away from target.
The results from the assessment calculated that the average house price is still well above average income. This will lead to a decrease in house prices to accommodate for potential buyers which will consequently mean less money returning back into the economy from consumers. In addition, the loans the UK has given to faltering eurozone economies including Greece, Ireland and Portugal total to £111Bn. Since there is still great uncertainty as to whether these countries will be able to repay the debt, the risk to the UK is severe.
The IMF has suggested that if they are correct and these factors lead to a delay in UK economic growth, the government would have to relax certain policies. This could include a reduction in tax in order to encourage consumer spending. On the other hand, if their predictions fail to materialise, the Bank of England may have to higher interest rates in order to manage the inflation rate.
In addition to this advice the IMF also recommends the UK improves their financial reporting as they believe we are inferior to other countries in this respect.
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