IMF praises UK's solid growth

Britain's economy and growth rate is "solid", the International Monetary Fund said on Tuesday providing a boost to the Conservatives as the party unveiled its general election manifesto.

The fund had no criticisms of the government's economic management, but it urged the Bank of England not to raise interest rates until the middle of next year at the earliest.

Having been a thorn in the side of the coalition government for much of the past five years, the praise from the IMF - in its twice-yearly World Economic Outlook - reflects Britain's relatively strong economic performance in an international context.

The fund does warn, however, that oil production costs in the North Sea are among the highest in the world, leaving parts of the Scottish economy, in particular, vulnerable to continued low energy prices.

The IMF forecasts that the UK economy will grow 2.7 per cent this year, compared with the 2.6 per cent recorded in 2014, before expansion rates drop to 2.3 per cent in 2016.

With unemployment forecast to fall further to 5.4 per cent, it thinks that after 2016, the economy will have used up capacity for rapid expansion and will continue to grow at about 2.2 per cent in the medium term.

This year and next, only the US is expected to have higher growth than Britain among large advanced economies, according to the IMF's figures.

The forecast is similar to predictions made by the Office for Budget Responsibility at the time of the Budget in March and do not leave room for a windfall in the public finances to pay for promises from all the leading political parties of additional public spending and tax cuts, alongside deficit reduction.

Putting the UK in a group of countries with "solid" growth, the IMF said, "continued steady growth is expected, supported by lower oil prices and improved financial market conditions".

It was to keep important interest rates low until 2016, the IMF recommended, otherwise it would have forecast lower growth rates.

"In the UK, monetary policy should stay accommodative for now, given currently weak inflation pressures," it said. Inflation would hover around zero this year, the fund forecast, before rising to average 1.7 per cent in 2016, still below the Bank of England's 2 per cent target.

It also urged the BoE to continue to think about risks from the property market. "Containing financial stability risks from housing and mortgage markets remains important," it said.

As part of its global focus on increasing investment and improving infrastructure as a means of sustaining recovery in the medium term, the IMF told political parties they should prioritise policies that aid house building.

"Measures to increase housing supply are a priority in Sweden and the UK," it said.

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The IMF estimated that the oil industry in Britain faced the highest operating costs in the world among leading oil producers, at a price of $40 a barrel to extract, compared with less than $5 in Kuwait.

Notable by its absence in the World Economic Outlook was any comment on Britain's fiscal policy. In 2012 and 2013, the IMF singled the UK out for criticism for seeking to reduce the deficit too fast, saying at the time it was "playing with fire", in the words of Olivier Blanchard, IMF chief economist.

In the April 2015 report, the UK's deficit and plans for further reductions in borrowing are not mentioned.

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