Gordon Brown: welcomes the "ringing endorsement"

"Tax levels are about right"

IMF Praises Government's "Excellent Start"

The International Monetary Fund is considered to be one of the world's most influential financial bodies.

The Chancellor of the Exchequer, Gordon Brown, welcomed the "ringing endorsement" of his policies. He said he was pleased to see that the IMF was satisfied with his budget.

"The new government has made an excellent start" reads the first sentence of the report, and the IMF experts go on to applaud the "high standard" of Labour's economic policies, which they say are "aiming to maintain stability and foster long term growth".

The Chancellor's measures for "monetary tightening", i.e. taxes and spending cuts, are described as "overdue". The authors write that it would be "difficult to criticise the magnitude of the overall up-front fiscal correction".

But the IMF has words of warning as well. The report identifies "looming imbalances" in the economy, which may require taxes on consumption. In other words, the IMF says that the government might be compelled to raise the rate of VAT.

The Chancellor, however, seems not to be prepared to follow this suggestion. Speaking to the BBC he said that taxes on consumers were currently at the right level. He repeated that the Government was committed to not imposing VAT on "basic essentials" such as food, children's clothes, transport, newspapers and books during this parliament.

The Shadow Chancellor, Peter Lilley, said: "The Chancellor in two months has not managed to do anything except his Budget, which he has got wrong by not, according to the IMF, taxing consumer spending."

Mr Lilley said Mr Brown had "raised the spectre" of consumer spending going out of control then had failed to do anything about it.

The IMF is optimistic regarding the current strength of Sterling, which British exporters have found difficult to cope with. The Fund's economists predict that the Pound's strength will be only temporary, but in the meantime will help to prevent the economy from overheating.

Finally the IMF welcomes the Government's "positive approach to European issues", and says it expects London to provide "constructive input in EU discussions".

The report was published following a 10-day fact-finding visit by an IMF delegation.