The UK government has another 6 months of financial hardship – with slow economic growth and little chance of further interest rate cuts – in store, said representatives of the International Monetary Fund (IMF) on Friday.
According to the report in The Guardian, the IMF’s most recent appraisal of the situation indicates that the UK economy is likely to experience increased difficulty until the end of 2008, before slowly moving toward recovery in 2009.
The report further explained that the UK government will not be able to decrease the current interest rate of 5% until – or unless – taxes increase, the so-called “credit crunch” lessens local demand, or a tighter watch is kept over salaries. The IMF advised the Bank of England to be prepared to increase rates in the event of wage rises placing pressure on inflation.
"Underlying these forecasts is the view that risks of a credit squeeze are being less threatening following various actions, including the introduction of the special liquidity scheme and capital raising initiatives by banks, but that conditions nevertheless remain tight as previous strains persist," said a representative of the IMF.
The spokesperson went further to say: "The broader economic challenges posed by this outlook are reflected most immediately in monetary policy dilemmas – where risks to the credibility of the inflation targeting regime from sustained overshooting of the inflation target have to be weighed against risks to activity from [the] financial sector and other shocks."
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