IMF warns British authorities in opposition to extra tax cuts

LONDON — The U.Okay. authorities shouldn’t introduce additional tax cuts this yr, the International Monetary Fund mentioned Tuesday, as its chief economist argued the nationwide price range wanted the cash for public providers and growth-friendly investments.

“What we are seeing in the U.K. and a number of other countries is a need to put in place medium-term fiscal plans that will accommodate a significant increase in spending pressures,” Pierre-Olivier Gourinchas mentioned throughout a press briefing.

In the U.Okay., he mentioned, this included spending on the National Health Service, social care, training and the local weather transition, in addition to measures to spice up development, whereas stopping debt ranges from growing.

“In that context, we would advise against further discretionary tax cuts, as envisioned or discussed now,” he mentioned.

An IMF spokesperson individually mentioned the U.Okay. had greater spending wants throughout public providers and investments than have been at the moment mirrored within the authorities’s price range plans. The IMF has really useful the U.Okay. strengthens taxes on carbon emissions and property, eliminates loopholes in wealth and earnings taxation, and reforms guidelines which set pension ranges.

British Finance Minister Jeremy Hunt will announce his newest price range in early March, in what stands out as the final main fiscal announcement earlier than a General Election is held. The timing of the vote is unsure, but it surely have to be referred to as by the Conservative authorities sooner or later this yr.

The Conservatives face an uphill battle, with the opposition Labour occasion forward in most polls.

Hunt introduced a number of tax cuts in his fall price range, and made a number of strategies he desires to introduce extra within the spring.

U.Okay. public sector web borrowing has fallen sharply, and in December 2023 was round half that of the prior yr because of greater VAT (a gross sales levy) and earnings tax receipts and decrease spending.

The IMF on Tuesday forecast 0.6% development for the U.Okay. financial system this yr, up barely from an estimated 0.5% determine for 2023. It revised its forecast for 2025 decrease by 0.4 share factors, to 1.6%, when it mentioned disinflation will ease monetary conditionals and permit actual incomes to recuperate.

The downgrade, it mentioned, “reflects reduced scope for growth to catch up in light of recent upward statistical revisions to the level of output through the pandemic period.”

Gourinchas informed CNBC on Tuesday that regardless of a weak development outlook for the yr, the U.Okay. had seen constructive news on inflation, which is forecast to common 2.8%.

“We’re at that point, we think, that the Bank of England will be in a position like the Federal Reserve and [European Central Bank] to ease policy rates as inflation is finally brought towards target,” he mentioned.