The International Monetary Fund warns the British government against further tax cuts
British Finance Minister Jeremy Hunt said earlier this month that the UK would not enter a recession this year.
Hannah McKay | Reuters
LONDON – The United Kingdom government should not offer further tax cuts this year, the International Monetary Fund said on Tuesday, as the fund’s chief economist said the national budget needed money for public services and growth-supporting investments.
“What we are seeing in the UK and a number of other countries is the need to develop medium-term fiscal plans that accommodate a significant increase in spending pressures,” Pierre-Olivier Gourincha said. He said during a press conference.
In the UK, he said, this includes spending on the National Health Service, social care, education and climate change, as well as measures to boost growth, while preventing debt levels from increasing.
“In this context, we advise against further discretionary tax cuts, as now envisioned or discussed,” he said.
An IMF spokesperson said separately that the UK had higher spending needs in public services and investment than currently reflected in the government’s budget plans. The IMF has recommended that the UK strengthen taxes on carbon emissions and property, remove loopholes in taxes on wealth and income, and reform the rules setting pension levels.
British Finance Minister Jeremy Hunt is set to announce his latest Budget in early March, in what may be the last major financial announcement before the general election. The timing of the vote is uncertain, but it should be called by the Conservative government sometime this year.
The Conservatives face an uphill battle, with the opposition Labor Party leading in most opinion polls.
Hunt announced several tax cuts in his fall budget, and made several suggestions that he would like to introduce further cuts in the spring.
UK public sector net borrowing It fell sharply, and in December 2023 it was about half of what it was the previous year due to higher value-added tax (sales tax) and income tax receipts and lower spending.
The International Monetary Fund on Tuesday forecast growth of 0.6% for the UK economy this year, up slightly from the 0.5% figure estimated for 2023. It revised its forecast for 2025 by 0.4 percentage points to 1.6%, when it said falling inflation would ease fiscal conditions and allow income Real recovery.
It said the reduction “reflects reduced room for catch-up growth in light of recent upward statistical revisions to the level of production during the pandemic period.”
Despite the weak growth outlook for this year, the U.K. has seen positive news on inflation, which is expected to average 2.8%, Gorinchas told CNBC on Tuesday.
“At this point, we believe the Bank of England will be in a position like the Fed [European Central Bank] “To ease interest rates as inflation finally reaches the target,” he said.
This article originally appeared on www.cnbc.com