IMF Executive Board Concludes 2017 Article IV Consultation with the United Kingdom

2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the United Kingdom


2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the United Kingdom

On February 12, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the United Kingdom.

Economic growth has moderated since the beginning of 2017, reflecting weakening domestic demand. The sharp depreciation of sterling following the referendum has raised consumer price inflation, squeezing household real income and consumption. Business investment has been constrained. In the medium term, growth is projected to remain at around 1.5 percent under the baseline assumption of continued progress in Brexit negotiations that lead to an understanding on a broad free trade agreement and on the transition process.

The baseline outlook is subject to a number of risks, including developments with Brexit negotiations; uncertainty about the recovery of productivity growth, which has been weak since the crisis; and the current account deficit, which reached a record high in 2016.

Monetary conditions were eased significantly following the June 2016 referendum, as the Bank of England reduced the policy rate and announced additional asset purchases as well as the introduction of a term funding scheme. The counter-cyclical capital buffer (CCyB, a kind of bank capital requirement) was also lowered to prevent a tightening of credit conditions. The government slowed its planned fiscal consolidation, and made a policy decision to increase public investment to support medium-term growth potential. A new set of fiscal targets was introduced in the 2016 Autumn Statement, providing room for policy flexibility in case of negative growth shocks. Structural reforms have aimed to boost productivity, for example by strengthening human capital, with the announcement of new T-level technical qualifications and the reforms to funding for apprenticeships.

Some of the monetary loosening has since been reversed. Bank Rate rose by 25 basis points in November 2017, while the CCyB has also been increased to a level consistent with a standard risk environment.

Executive Board Assessment2

Executive Directors noted that output growth remains positive and labor market performance strong, notwithstanding the moderation in economic activity that reflects the impact of the exchange rate depreciation on consumption and the heightened uncertainty following the decision to leave the European Union (EU). This uncertainty will continue to weigh on growth, and the outlook depends crucially on the outcome of the negotiations with the EU. At the same time, significant risks remain, on both the domestic and external fronts. Directors agreed that policies should focus on maintaining stability and investor confidence, raising productivity growth and household saving, and reducing the current account deficit.

Directors welcomed the recent progress in negotiating the U.K. departure from the EU, which allowed discussion to move to issues related to a transition period and the framework for the future relationship. They encouraged both parties to continue their best efforts to reach the most beneficial outcome, limit disruptions and global spillovers, and more specifically, minimize barriers to trade, services, and labor flows.

Directors welcomed the authorities’ plans to rebuild fiscal buffers in a gradual, growth-enhancing manner, alongside improvements in fiscal transparency practices. They noted that reforms on the revenue side would help create space and promote efficiency. With inflation above target, Directors supported the planned gradual withdrawal of monetary stimulus to bring inflation back to target over the medium term. They concurred that this balanced policy mix would also help the process of external rebalancing over time.

Directors appreciated the authorities’ commitment to respond flexibly to shocks, with contingency planning in place for a range of outcomes. In the event of a disorderly EU exit, Directors encouraged the judicious use of flexibility embedded in the fiscal framework to support the economy, stressing that any easing of fiscal policy should be temporary, limited, and anchored by credible medium-term consolidation plans. Directors welcomed the monetary authorities’ intention to stand ready to respond to developments as they unfold. They underscored that clear and timely communication will be particularly important in this regard.

Directors welcomed the resilience of the U.K. financial sector, owing in part to post-crisis regulatory reform. They encouraged the authorities to maintain robust prudential and supervisory standards, and continue monitoring consumer credit and bank risk weights. Directors commended the authorities for proactively helping financial institutions prepare for the exit, given the uncertainties regarding the future of financial service arrangements with the EU. They called on all parties involved to work together to mitigate transition risks related to changes in regulatory regimes and responsibilities. More generally, they underscored the importance of close cross-border cooperation in a potentially more fragmented European financial system.

Directors agreed that structural reforms should prioritize enhancing productivity, inclusiveness, and external competitiveness. They welcomed the planned increase in infrastructure investment and the improved framework for selecting and implementing infrastructure projects. They encouraged sustained efforts to strengthen human capital and boost housing supply. Directors looked forward to further progress in enhancing AML/CFT supervision and information sharing, building on recent reforms to improve corporate transparency.

United Kingdom: Selected Economic Indicators, 2013–18

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Sources: Bank of England; IMF’s Information Notice System; HM Treasury; Office for National Statistics; and IMF staff estimates.

Based on ONS preliminary estimate of GDP for 2017Q4.

ILO unemployment; based on Labor Force Survey data.

The fiscal year begins in April. Data exclude the temporary effects of financial sector interventions. Debt stock data refers to the end of the fiscal year using centered-GDP as a denominator. English housing associations are re-classified from the public to the private sector starting in FY2017.

In percent of potential output.


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:

United Kingdom: 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the United Kingdom
Author: International Monetary Fund. European Dept.