The Bank of England will reduce interest rates and continue with cash production to heighten demand in the economy, as requested by the International Monetary Fund. IMF also suggested the UK government must have a Plan B in reducing deficits, in case the actions fail.
IMF evaluated UK’s economic prospects, stating the economy has not been responding well to the expectations and has been drifting towards economic stagnation. According to IMF, “further monetary easing is required” and cutting the interest rate to 0.5 per cent is necessary. Although BoE has been quick with its response on IMF’s demands, economic recovery in UK remains on uncertain grounds.
“The stresses in the euro area affect the UK through many channels. Growth is too slow and unemployment, including youth unemployment, too high,” says Christine Lagarde, managing director of IMF, during a joint conference with Chancellor George Osborne.
IMF also suggests low borrowing costs to increase investments in the private sector. It also suggested UK to pursue the eurozone in offering banks affordable and long-term financial support. IMF also says the government must be careful with their cuts–they must gradually reduce costs for infrastructure expenses and public sector wages to avoid severe effects on the economy.
IMF and BoE continue to discuss possible options and changes. Nevertheless, risks are involved with all the policy changes set to happen. Lagarde, however, says these risks may be necessary.