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Pound overvalued, warns IMF

29 Jul 2014

Concerns have been raised by the International Monetary Fund (IMF) that sterling may be ‘overvalued’, which could pose a significant risk to the UK economy.

Chancellor George Osborne received warnings from the IMF that the pound has been valued between 5% and 10% more than it should. The Bank of England’s current monetary policy was said to be the correct method for the time being, but it is likely that interest rates will need to rise if inflation does.

Philip Gerson, deputy director of the IMF’s European department, said: ‘Overall we are much more optimistic than we were a year ago, both about short-term growth and about the prospects for growth to continue in the medium term.

‘Wages are growing very slowly and although output is beginning to pick up, the recovery is still at an early stage and there is still a lot of slack in the economy’.

A press release from the IMF shows the same generally positive but cautious outlook. It said: ‘Further demand rebalancing is needed: net trade has made only a modest contribution to the recovery, and the real exchange rate is moderately overvalued’.