The IMF blunders on the UK economy

Yesterday I honoured my speaking commitments which had been planned with the referendum in mind but talked about other matters. The student debate became a discussion of our democracy, and a business audience were happy to think about the global economy. Today Vote Leave and I have cancelled the walkabout and speech by Michael Gove planned for Wokingham Town centre.

My newspapers tell me that the IMF despite the change of mood in the UK has decided to release its assessment of the UK economy. It has produced a flagrantly political intervention, claiming a bleak future if we leave the EU and a continuing good future if we stay in. I read its own website, which flags the UK report with a picture of Westminster in the rain at its mast head. This is a most unfortunate decision, which demeans the institution.

The forecast assumes that the rest of the EU will be willing and able to impose new barriers on their trade with us in an act of self harm, at a time when the IMF thinks the Euro area economy is weaker and more exposed to troubles than the UK one. I think this very unlikely. No-one explains exactly how and why they will do this. The German government has never said it wants any new tariffs or non tariff barriers, and they tend to lead the EU’s response to such issues.

It assumes there will be a confidence affect as well, when the leading inward investors to the UK with factories here have made clear they are going to stay as the UK workforce, domestic market and export base suits them. They have the contacts they need with the rest of the world through our airports, seaports, the English language, our liquid financial markets, and high standards of corporate governance and dispute resolution. So far the various short term forecasts cited by the IMF to talk down the pound, to talk interest rates up and to talk the UK into an early recession have failed. Sterling is a bit higher against the dollar than at the end of February when the referendum campaigns got into gear, and government borrowing rates are well down on the opening levels of 2016.

The IMF rightly highlights the weak UK balance of payments position as a negative for the economy. It does, however, point out that part of the reason for this is low returns on UK investments abroad, which it thinks might improve in due course. The IMF does not point out the UK’s large net contributions to the EU are also an important part of the balance of payments deficit which would immediately improve once we cancel the contributions, as we will if the country decides to leave.