United Kingdom: Staff Report for the 2014 Article IV Consultation
IMF Staff Country Reports, July 28, 2014
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- Published: July 28, 2014
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781498308168.002
KEY ISSUES — Outlook and growth drivers
- The economy has rebounded strongly and prospects are promising.
- Headwinds that previously held back the economy—relating notably to credit conditions and confidence—have eased.
- Sustaining strong growth will depend on a recovery in productivity growth and further demand rebalancing.
- Sterling is moderately overvalued.
Monetary policy and inflation
- Effective monetary conditions are very supportive, compensating for ongoing fiscal consolidation.
- Accommodative monetary policy is appropriate for now, given weak inflation pressures, but policy might need to be adjusted quickly if inflation takes off.
- Interest rate increases may also need to be considered if macroprudential tools are insufficient to deal with financial stability risks from the housing market.
Housing market, macroprudential policy, and supply
- The housing market brings risks of financial vulnerabilities.
- The authorities have recently implemented macroprudential measures, including limiting the share of high loan-to-income mortgages lenders can issue, establishing them as the primary defense against housing-related risks.
- Authorities should stand ready to tighten these limits should current settings prove ineffective in reining in those risks.
- A lasting solution to house price pressures requires measures to address insufficient supply.
- Significant planning reforms have been undertaken, but political consensus is needed to make further progress in this area.
Fiscal stance and public debt
- High deficits and rising debt mean that fiscal consolidation needs to continue.
- The pace and composition of deficit reduction over the near term is appropriate.
- Further reducing the deficit over the medium term will be challenging; both revenue and expenditure measures should be considered, keeping in mind both equity and efficiency.
Financial sector resilience and risks
- The financial sector is more robust, and the new financial architecture is settling in.
- Significant changes have been made to banks’ liquidity backstops to adapt to changing needs.
- Implementing macroprudential policy will be a test of the new architecture.
- Persistent problems include Too Important To Fail and bank misconduct; new challenges are emerging, such as from shadow banking.
International Monetary Fund. United Kingdom: Staff Report for the 2014 Article IV Consultation, July 28, 2014.