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© 2003 International Monetary Fund
February 2003
IMF Country Report No. 03/48
United Kingdom: 2002 Article IV Consultation—Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the United Kingdom
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the Article IV consultation with the United Kingdom, the following documents have been released and are included in this package:
the staff report for the 2002 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on December 7, 2002, with the officials of the United Kingdom on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on February 5, 2003. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a staff statement of February 26, 2003 updating information on recent developments.
a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its February 26, 2003 discussion of the staff report that concluded the Article IV consultation.
a statement by the Executive Director for the United Kingdom.
The document(s) listed below have been or will be separately released.
Selected Issues Paper
Financial System Stability Assessment
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
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International Monetary Fund
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INTERNATIONAL MONETARY FUND
UNITED KINGDOM
Staff Report for the 2002 Article IV Consultation
Prepared by the Staff Representatives for the 2002 Consultation with the United Kingdom
Approved by Michael Deppler and Leslie Lipschitz
February 5, 2003
Article IV Consultation discussions were held in London during November 21-December 7, 2002. The mission comprised Mr. Cottarelli (Head), Ms. Coorey, Mr. Escolano, Ms. Koeva, and Ms. Vladkova-Hollar (all EU1). Mr. Zelmer (MAE) joined the mission to conclude FSAP discussions. Mr. Scholar, Executive Director for the United Kingdom, and Mr. Kelmanson (OED) attended the meetings. Staff met with the Chancellor of the Exchequer, the Governor of the Bank of England (BoE), the Chairman of the Financial Services Authority (FSA), and other senior officials, including members of the Monetary Policy Committee (MPC). Staff also met representatives of the employers’ and employees’ organizations, financial institutions, and members of the academic community.
At the conclusion of the last consultation in March 2002, Directors commended the authorities for the impressive performance of the U.K. economy. Directors, however, stressed that the overall structural fiscal deficit should not be raised beyond the path envisaged in the November 2001 pre-budget report. They noted that any additional spending should be undertaken only if based on a clear-cut economic justification and if risks of spending efficiencies were adequately addressed.
The authorities have generally responded appropriately to policy challenges identified in previous Article IV consultations. In particular, the reforms of the macroeconomic policy framework introduced during the 1990s and the cautious macroeconomic policy management followed in recent years have been in line with international best practices and Fund advice. However, as discussed in this report, the recent weakening in the medium-term fiscal deficit outlook, reflecting decisions taken during the last year, goes beyond the Fund’s recommendations during the 2001 Article IV consultation.
The United Kingdom has accepted the obligations of Article VIII, Sections 2,3, and 4. The exchange system is free of restrictions on the making of payments and transfers for current international transactions (Appendix II).
The United Kingdom has subscribed to the Special Data Dissemination Standard, and its data provision is adequate for conducting surveillance (Appendix III).
The authorities released the mission’s concluding statement and have agreed to the publication of the staff report.
Contents
I. Key Issues
II. Report on the Discussions
A. An Uncertain Outlook
B. Monetary Policy Dilemmas
C. Fiscal Policy Challenges
D. Boosting Long-Term Growth
E. Providing for Financial System Stability
F. Other Issues
III. Staff Appraisal
Text Boxes
1. Global Economic Uncertainties
2. Household Debt: Survey Evidence
3. Pension Obligations and Long-Term Fiscal Trends
4. Why More Public Services Now?
5. Summary of FSAP Recommendations
Figures
1. Fiscal Indicators
2. Output per Employee in Selected OECD Countries and Years
3. International Comparison of Trends and Forecasts
4. Corporate Sector Developments
5. External Trade
6. GDP Growth and the Output Gap
7. Leading Economic Indicators
8. Labor Market Developments
9. Asset Prices, Retail Inflation, and Exchange Rates
10. Private Consumption Developments
11. Interest Rates
Tables
1. Selected Economic Indicators
2. Quarterly Growth Rates and Contribution to Growth
3. Medium-Term Scenario
4. Balance of Payments
5. Public Sector Budgetary Projections
Appendices
I. Basic Data
II. Fund Relations
III. Statistical Information Core Statistical Indicators
IV. Sustainability Exercise
Appendix Tables
A1. Public Sector Debt Sustainability Framework, 1997–2007
A2. Net Investment Position
A3. Indicators of External and Financial Vulnerability
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Public Information Notice (PIN) No. 03/22
International Monetary Fund
FOR IMMEDIATE RELEASE
700 19th Street, NW
March 3, 2003
Washington, D. C. 20431 USA
