IMF softens views on UK government's policies

LONDON (AP) ? The International Monetary Fund has softened its assessment of the British government's economic policies, saying in a report Wednesday that it did well to ease its pace of austerity cuts, but stressing more was needed to support the recovery.

The report had been hotly anticipated after the IMF last month criticized the government's focus on debt reduction at the expense of economic growth. But while the Washington-based international lender offered mild sanction, the tone was decidedly less heated than predicted.

It praised the government for showing "welcome flexibility in its fiscal program" that it says have earned it credibility in financial markets. However, it warned that the economy, which in the first quarter narrowly dodged a third recession since 2008, needed more support.

"Given the tepid recovery, policy should capitalize on the nascent signs of momentum to bolster growth," the report said.

The verdict came just hours after minutes to the Bank of England's last meeting in May showed policymakers remain reluctant to offer more monetary stimulus to the economy.

The minutes showed the nine members of the Monetary Policy Committee unanimously approved keeping the base interest rate at 0.5 percent but disagreed on pumping more money into the economy. Since 2009, the bank has injected 375 billion pounds ($579 billion) into Britain's economy in a program known as quantitative easing.

Under the program, the bank buys government bonds from financial institutions, hoping they will lend to businesses and individuals. Governor Mervyn King and two other members pushed for an increase of 25 billion pounds, but were outvoted.)

The continued fragility of the economy was made clear in new figures on retail sales, released Wednesday, which showed a sharp 1.3 percent drop in April compared with March. That was much worse than the 0.1 percent rise analysts were expecting.

Samuel Tombs, an economist with Capital Economics in London, noted that the Bank of England's minutes showed a greater concern about the impact that stimulus could have on inflation expectations.

The IMF noted in its report that inflation was easing, which should allow the Bank of England's policies ? which it described as "vigorous and appropriate" ? to remain accommodative for the time being.

It acknowledged, however, that the impact of such easy monetary policy is being hindered by the fact that the banks are still cautious about lending. To address that issue, banks should be made to improve their balance sheets, which would reduce risk and encourage them to lend more.

Source: http://news.yahoo.com/imf-softens-views-uk-governments-policies-110412248.html

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