This article addresses the economic standpoint of the UK and discusses the IMF’s suggestions for the nation. Up until recently, the IMF believed the UK’s main priority to be cutting the deficit as it has jumped from £9.1bn in April 2011 to £11.5bn. However, the IMF is now most focused on the aspect of economic growth; the IMF claims that “growth is too slow and unemployment, including youth unemployment, too high.” They are further urging the Bank of England to open the door to more quantitative easing and cut interest rates even lower than the historic low rate of .5%.
As discussed in class, in order to decrease interest rates the UK must increase the money supply. All of this in turn will increase investment. Therefore, the UK is currently considering printing more money. As inflation is currently at its lowest level in two years, advocate of money printing are suggesting now is an excellent time. Those who do not support money printing suggest that this is only a short-term boost in the stock market if more money was to be printed and that it will do nothing for long-term growth. Also, as discussed in class, an increase in currency will cause the pound to depreciate in value:
as domestic products are cheaper exports would increase and imports would decrease because they’d be more expensive.
Based on the decrease in taxes, the possibility to cut interest rates and the increase in transfer payments, it seems that the UK is currently employing expansionary policy. The main problem with this is of course the budget deficit which the UK is clearly experiencing. Because the nation is spending more it is forced to borrow which results in debt. Also, the UK cannot keep up this type of spending as the article states that “public finances leave precious little scope for any significant boot to public spending.”
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