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© 2007 International Monetary Fund
March 2007
IMF Country Report No. 07/91
United Kingdom: 2006 Article IV Consultation—Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for 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 2006 Article IV consultation with United Kingdom, the following documents have been released and are included in this package:
the staff report for the 2006 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on December 18, 2006, with the officials of United Kingdom on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on February 13, 2007. 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 Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its February 28, 2007 discussion of the staff report that concluded the Article IV consultation.
a statement by the Executive Director for United Kingdom.
The document listed below has been or will be separately released.
Selected Issues Paper
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
UNITED KINGDOM
Staff Report for the 2006 Article IV Consultation
Prepared by Staff Representatives for the 2006 Consultation with United Kingdom
Approved by Michael Deppler and Adrienne Cheasty
February 13, 2007
Executive Summary
Background and outlook: The pickup in GDP growth in 2006 continues a decade-long record of strong and steady macroeconomic performance. Recent and planned economic policies, in a supportive international environment, are well-suited to sustaining these strengths. GDP growth in 2007–08 is expected to remain steady and in line with potential, while CPI inflation is projected to return to target over the coming year. Although sterling could be slightly overvalued, the external current account is sustainable. Notwithstanding the strong and steady outlook, risks are not insignificant, especially from the housing market and the global economy.
Challenge: The United Kingdom has absorbed domestic and global shocks well, thanks to the economy’s flexibility and the strong positioning of macroeconomic and financial policies. Ensuring that policies can continue to contribute to resilience remains a challenge. In particular, fiscal stabilizers must have ample space to operate, monetary policy must anchor inflation expectations, and financial policies must bolster the financial sector’s strength.
Authorities’ views: The authorities see their policy frameworks as providing a strong platform for the economic stability they believe is essential to prosperity. Spending restraint is planned to underpin fiscal consolidation. Interest rates are seen as well-positioned to respond to shocks. Efforts are underway to strengthen the resilience of the financial system by improving stress-testing and enhancing cross-country cooperation.
Staff views: Convergence between the authorities’ and the staff’s views is high. Planned fiscal consolidation should halt the increase in public debt, and staff emphasizes the desirability of holding the fiscal deficit down after this adjustment so as to increase scope for fiscal stabilizers. For monetary policy, taming the energy-price–related increase in inflation remains a challenge. Efforts to promote financial system resilience are welcome.
Contents
I. Introduction
II. 2006—Balanced Recovery Pushing Close to Capacity Constraints
III. Strong and Steady Outlook
IV. Challenges in Anchoring Inflation Expectations
V. Protecting Counter-Cyclicality in Fiscal Policy
VI. Financial Stability: Risk of Global Shocks
VII. Convergence of the Authorities’ and Staff Views is High
VIII. Staff Appraisal
Tables
1. Selected Economic and Social Indicators
2. Quarterly Growth Rates and Contribution to Growth
3. Balance of Payments
4. Medium-Term Scenario
5. Public Sector Budgetary Projections
Figures
1. Economic Growth
Boxes
1. Surveillance and Policies
2. Globalization, Efficiency Gains, and Inflation
3. The Macroeconomic Impact of Immigration
4. Globalization and Monetary Policymaking
5. Linkages between Major International Banks
Appendix
I. Sustainability Exercises
I. Basic Data
II. Fund Relations
III. Statistical Issues
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February 28, 2007
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Public Information Notice (PIN) No. 07/28
FOR IMMEDIATE RELEASE
March 5, 2007
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
