IMF – Backing Plan A or calling for Plan B?

Stand by for the latest utterances of the IMF about the state of the UK economy to be scoured for evidence of support for the government's Plan A or backing for Labour's calls for a Plan B.

The fact that the chancellor is rolling out the red carpet for the Fund's managing director Christine Lagarde suggests that George Osborne is pretty confident that what she'll say is helpful. In truth, whoever is head of the IMF has to be a diplomat and has to maintain good relations with the world's finance ministers in order to persuade them to stump up the funds the IMF needs.

It's worth remembering that the IMF praised Gordon Brown's stewardship of the British economy.

It is the IMF's economists who occasionally slip in hints of criticism to their reports. In the past year they've suggested that the UK should consider changing its plans if growth slows.

In September last year the IMF said: "If activity were to undershoot current expectations, countries that face historically low yields (such as Germany and the UK) should also consider delaying some of their planned adjustment," ie the speed of cuts. Of course, the chancellor then went on to add another two years to his deficit reduction plan in his Autumn Statement.

In January of this year the IMF's chief economist Olivier Blanchard told the BBC that "if growth is really dismal then you may decide that you're going to go a bit more slowly about the discretionary part of the budget" before adding that "to the extent that these countries are not under the gun from the markets, have plausible medium term plans, they can slow down and it would help".

So, support for Labour then? Well, not if you went on a few sentences when he added "there's another issue which is if you have announced the plan and you deviate from the plan you may lose credibility. So given that the UK has announced the plan moving from it is a bit more difficult than it might be for another country".

In other words, slowing down the cuts/tax rises might help growth but also might risk credibility in the markets and lead to a rise in interest rates.

So, the IMF was helpfully saying to the government 'this is a tricky judgement with upsides and downsides whatever you do'. Or, to quote the editor in my favourite movie about journalism "The Paper" - "You have a problem but, you know what, it's your problem."