Emmanuel Ukudolo
UK, February 24, 2016 – The International Monetary Fund (IMF) has called on government of the United Kingdom to formulate policies that would shield the financial sector, warning that safety of the UK financial sector is critical for maintaining domestic and global financial stability.
The IMF gave the warning in a statement showing a clear forecast of the UK selected economic indicators from 2012 – 2017.
The IMF encouraged continued vigilance as the regulatory environment stabilizes, following a period of considerable reform and as the credit cycle matures.
It suggested that government must address emerging risks early and actively use countercyclical capital buffers, and ensure that risks do not migrate outside of the regulatory perimeter.
The IMF welcomed efforts to strengthen standards for financial market conduct and encouraged close monitoring of the nonbank financial sector.
It pointed out that the UK economy will grow by 2.2 percent on the average in the medium term but that inflation, which is currently very low (0.3 percent in January 2016), is expected to rise slowly as disinflationary effects from past commodity price falls and sterling appreciation dissipate, and as wages increase.
It however warned that the relative benign scenario is subject to risks and is sensitive to movements in global growth, asset prices, and productivity growth, among other factors.
It pointed out that notwithstanding some recent deceleration in prices of houses and efforts to boost supply and contain housing-related risks, house price pressures remain elevated, posing continued challenges for both macroprudential and housing supply policies.
While commending UK’s strong economic performance, which has delivered robust growth, high employment, a significant reduction in fiscal deficits, and increased financial sector resilience, it noted that the relatively positive outlook is subject to risks and uncertainties, including those related to the global outlook, sluggish productivity growth, a weak external position, still-high levels of household debt, and the forthcoming referendum on EU membership.
