|George Osborne should take on the mighty IMF
|What a difference two years make. It was in the sunny surrounds of the Treasury in the summer of 2011 that George Osborne listened with deliberately intense interest to John Lipsky, the deputy director of the International Monetary Fund.
Mr Lipsky had arrived to praise, not bury, the Chancellor. “The current slowdown [in the economy] in our view is temporary and the current policy mix is appropriate,” Mr Lipsky said.
Mr Osborne was most gracious in his response. “I welcome the IMF’s continued strong support for our overall macro-economic policy mix, including our deficit reduction strategy,” the Chancellor purred.
“The IMF have publicly asked themselves the question 'whether it is time to adjust macro economic policies’ - in other words, is it time to change course? And they have concluded definitively that 'the answer is no’.”
Last week the tone was rather more spiky. Christine Lagarde, the IMF’s managing director, announced that the IMF in its wisdom had now decided that in fact Britain was not on the right track and that its “austerity” measures should be curtailed. No one in Britain, of course, has actually voted for Madame Lagarde.
“We have said that should growth be particularly low, then there should be consideration to adjusting by way of slowing the pace,” Ms Lagarde said, before adding rather archly: “This is nothing new.”
Her words came two days after Olivier Blanchard, the IMF’s chief economist, suggested that Britain was “playing with fire” as it downgraded UK growth to 0.7pc from 1pc. This is 0.1pc above where the Office for Budget Responsibility thinks it will be.
“There is a point at which you actually have to sit down and say maybe our assumptions were not right and maybe we have to slow down”, he said on fiscal consolidation.
Mr Osborne’s critics leapt on the IMF’s apparent change of heart. Ed Balls, never knowingly undersold on talking down the economy, responded: “Next week’s growth figures will need to decisively show that a strong and sustained recovery is finally under way or the Chancellor will be in real trouble.”
Happily the Treasury has not taken all this finger wagging lying down. Authoritative briefings on the Government’s attitude to the IMF’s visit to the UK next month revealed a Chancellor gearing up for a fight. IMF officials have been warned to watch out for “poisoned umbrellas” as they compile the annual “Article IV” assessment of the state of the British economy.
In their battle, the Treasury appears to have the support of Mark Carney, the next Governor of the Bank of England, who has signalled that he does not believe that the Government’s fiscal policies are hindering efforts to build growth.
In his battle to take on the mighty fund, the Chancellor could do worse than read a new research note by Gabriel Sterne of Exotix Fixed Income. In his paper, Mr Sterne calls for a “transparency revolution” at the IMF, which he says has broken “fundamental rules” when it comes to its attitude to supporting the struggling economies of the eurozone.
Reading the document, a picture is painted of an institution stifled by bureaucracy and inherently secretive. Mr Sterne takes the fund to task for its inability to more accurately forecast economic growth, a key question as the IMF considers whether to opine that Mr Osborne’s Plan A has run its course.
Looking at Greece, admittedly a harder forecasting challenge, Mr Sterne’s paper says that “the fund has so far revised down its projections for the level of 2013 Greek GDP a mind-boggling 22pc in just 18 months, an error that makes it impossible to make a fist of the medium-term monetary adjustment”.
It did not seem to understand the “dismal algebra” of austerity + credit crunch = output collapse.
Mr Sterne puts the problems down to poor leadership, analytical conservatism and the fact that “the IMF barely needs to provide any justification of absolutely crucial analytical and policy decisions”.
The paper is focused on the role of the IMF in the “rescue” of Greece. But its arguments can be usefully transferred to a wider concern about the IMF itself - does the post-Second World War institution understand the world around it? Ultra-loose monetary policy has left even central bankers admitting they are flying blind.
Mr Osborne is right to set his jaw against the IMF dabbling too deeply in UK politics.
Sadly he made a mistake by being too cosy when he believed the IMF an ally as marriages between democratically-elected politicians and economic bureaucrats are never satisfying. It is now time for Mr Osborne to propose at least a partial separation.
Middle class Tesco
Philip Clarke, the chief executive of Tesco, must be hoping that the decision to part ways with American business Fresh and Easy last week marks the end of the beginning for his turnaround programme.
Disposing of a loss-making business with little hope of expansion was a sensible move. Mr Clarke wants to concentrate on international markets in the East as well as a UK business that had become defined by the joke that the slogan “Every Little Helps” had actually come to mean “Every Little Helps Tesco”. Whatever it did appeared to be defined by whether it enhanced the bottom line.
It would, of course, be ridiculous to rewrite the history of Sir Terry Leahy’s tenure at Tesco so that the final chapter was stamped with the word “failure”. Sir Terry oversaw the growth of a remarkable business that brought good-quality food at low prices to millions of people. Such an achievement, even in this anti-business environment in which we find ourselves, is not to be sniffed at.
But, as with Bob Diamond at Barclays, the world has moved on. Tesco had become seen as a utilitarian brand, lacking warmth and a “point of view” beyond “is this good for Tesco?”. Waitrose it wasn’t.
Mr Clarke, I am sure, wants to change that and now that the US business is dealt with and he has announced the end of 170 expansion projects in the UK it is time to start seeing the colour of his money.
The relaunch of Tesco Finest this year will sit well alongside the revamp of Everyday Value, which moved the brand from packaging that shouted “cheap” to one that whispered “good prices”. Expect bigger roles for upmarket coffee shops Harris + Hoole, baker Euphorium and family-friendly restaurant Giraffe as Tesco inches its branding gently upwards.
Investors are clearly still wary, with the share price on the day of the results sliding 15p or 4pc. Mr Clarke has an ace, though. With capex under better control, Tesco is a business that generates a lot of cash. By 2017 it will have the potential to return £1.6bn to shareholders. Every little helps.