IMF cautions that pound is overvalued

The International Monetary Fund has warned that sterling is between 5 and 10 per cent overvalued and that this is making it harder to rebalance the UK economy.

In the conclusion of its annual Article IV snapshot of the economy, the fund noted that the current account deficit ballooned to 4.5 per cent in 2013, potentially posing a threat to economic stability.

“Sustaining a strong and durable recovery requires a rebalancing away from public support towards private-sector led demand, along with a greater reliance on external demand,” the fund said.

“Further structural reforms focused on broadening the skill base and investing in public infrastructure will boost productivity, improving the [economy’s] competitiveness”.

However, the IMF reiterated that Britain’s economy is now growing strongly, and that business investment is picking up. A year ago, in an embarrassment for George Osborne, the IMF recommended that the Coalition slow the pace of its cuts. But yesterday the fund confirmed it supports the chosen rate of fiscal consolidation.