On June 15, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the United Kingdom.
The UK economy has performed relatively well in recent years, with economic growth consistently near the top among major advanced economies and the employment rate at a record high. However, growth has slowed somewhat in the first part of 2016, as heightened uncertainty ahead of the referendum on EU membership appears to be weighing on investment and hiring decisions.
In a baseline scenario in which the UK remains in the EU, growth is expected to recover in late 2016, as referendum-related effects wane, and to average around 2.2 percent over the medium term. Inflation is expected to rise gradually from its current low level (0.3 percent as of May 2016), as disinflationary effects from past commodity price falls dissipate and as tighter labor markets and minimum wage hikes help push up wages.
However, this broadly positive baseline scenario is subject to risks, including those related to the referendum; the current account deficit, which reached a record high in 2015; uncertainty about the degree to which productivity growth, which has been low since the crisis, will recover; and vulnerabilities associated with property markets, which have been buoyant in recent years.
Economic policy has aimed to increase resilience while maintaining steady and sustainable growth. The overall fiscal deficit has been cut to about 4 percent of GDP in FY15/16, down from a peak of over 10 percent of GDP in FY09/10. Monetary policy has stayed accommodative, with the policy rate unchanged at 0.5 percent, given subdued inflationary pressures and helping to support growth. Structural reforms have aimed to boost potential output by, for example, efforts to ease regulatory impediments to housing construction.
Major financial sector reforms have been adopted since the crisis, helping to bolster resilience and requiring banks to increase buffers in their balance sheets. This progress was assessed in detail during this Article IV consultation as part of the IMF’s Financial Sector Assessment Program (FSAP), which analyzes financial sector health and associated policies. The FSAP’s findings are summarized in the accompanying Financial System Stability Assessment (FSSA).
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.