Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



IMF Calls on Britain to Do More for Growth

LONDON (AP) -- The International Monetary Fund has called on Britain to do more to support the economic recovery, urging the government Wednesday to speed up investment in infrastructure and come up with a plan to privatize its bailed out banks.

In a review of Britain's policies, which had been hotly anticipated after the IMF last month criticized the government's focus on budget austerity, the IMF applauded the greater "flexibility" shown by Treasury chief George Osborne.

But it warned that more needed to be done for the economy, saying the government "should capitalize on the nascent signs of momentum to bolster growth."

Infrastructure projects -- such as building social housing -- could create jobs and stimulate economic activity. But that alone is not enough, given that the economic downturn has been one of the most prolonged since the Great Depression.

"Our view is there is no single silver bullet," said David Lipton, the IMF's first deputy managing director and previously a top economic advisor to President Barack Obama.

The IMF also urged the government to develop a clear strategy for two banks which received government funding to stay afloat -- even if it requires another capital infusion. The government plans to return the Royal Bank of Scotland and Lloyds to private ownership -- but when and how remains unclear.

"Any strategy should seek to return the banks to private hands in a way that maximizes the value for taxpayers, strengthens confidence and competition in the sector, and minimizes outward spillovers," the IMF said in its statement. "In this context, if a sovereign backstop is required to meet a capital shortfall, it should be provided."

The IMF made headlines in Britain last month when it criticized Osborne's plans to reduce debt quickly, at the expense of economic growth.

The government's spending cuts and tax increases in recent years have damped growth as companies and consumers were unable to plug the gap left by the retrenching state. That contributed to pushing the economy into recession twice since 2008.

While the Washington-based IMF on Wednesday called for the government to do more, the tone of its report was decidedly less heated than some had predicted.

The assessment came just hours after minutes to the Bank of England's last meeting in May showed policymakers remain reluctant to offer more monetary stimulus to the economy.

The minutes showed the nine members of the Monetary Policy Committee unanimously approved keeping the base interest rate at 0.5 percent but disagreed on pumping more money into the economy. Since 2009, the bank has injected 375 billion pounds ($579 billion) into Britain's economy in a program known as quantitative easing.

Under the program, the bank buys government bonds from financial institutions, hoping they will lend to businesses and individuals. Governor Mervyn King and two other members pushed for an increase of 25 billion pounds, but were outvoted.

The continued fragility of the economy was made clear in new figures on retail sales, released Wednesday, which showed a sharp 1.3 percent drop in April compared with March. That was much worse than the 0.1 percent rise analysts were expecting.

Samuel Tombs, an economist with Capital Economics in London, noted that the Bank of England's minutes showed a greater concern about the impact that stimulus could have on inflation expectations.

The IMF noted in its report that inflation was easing, which should allow the Bank of England's policies -- which it described as "vigorous and appropriate" -- to remain accommodative for the time being.

It acknowledged, however, that the impact of such easy monetary policy is being hindered by the fact that the banks are still cautious about lending. To address that issue, banks should be made to improve their balance sheets, which would reduce risk and encourage them to lend more.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2446989, ~/Articles/ArticleHandler.aspx, 9/25/2016 5:00:19 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes