IMF urges UK to ‘reassess’ tax cuts amid inflation concerns
A woman walks past a headline displayed on a wall in London, Tuesday, September 27, 2022. The pound has stabilized in Asian trade after plunging to a record low, as the Bank of England and the British government try to appease jittery markets in a volatile UK economy. The instability is having real-world repercussions, with several UK mortgage lenders pulling deals over fears interest rates could soon soar. (AP Photo/Frank Augstein)
PA
LONDON
The International Monetary Fund has urged the UK government to “reassess” a package of unfunded tax cuts it says could fuel inflation and increase economic inequality.
The value of the pound fell Wednesday morning after the IMF’s rare warning of a Group of Seven economy, trading below $1.07.
Treasury chief Kwasi Kwarteng was meeting investment bank executives on Wednesday as the Tory government seeks to calm markets
Prime Minister Liz Truss’ government unveiled a 45 billion pound ($48 billion) tax cut package on Friday in a bid to spur economic growth. But the plan was not accompanied by spending cuts, or even an independent estimate of costs, raising fears it could inflate public debt and add to inflation which is already nearing a peak. 40 years old.
“Given the high inflationary pressures in many countries, including the UK, we do not recommend large, untargeted fiscal programs at this stage, as it is important that fiscal policy does not work against the grain of the monetary policy,” the IMF said in a statement. . “Furthermore, the nature of the UK measures will likely increase inequality.”
The pound fell to a record low against the US dollar of $1.0373 on Monday amid investor concerns over government policies. The Bank of England sought to stabilize markets on Monday, saying it was ready to raise interest rates “as much as necessary” to contain inflation. But the bank’s next scheduled meeting isn’t until November, and the lack of immediate action has done little to support the pound.
Britain’s currency is still down 4% since Friday, and the pound has fallen 20% against the dollar over the past year.
The turmoil is already having real-world effects, with UK mortgage lenders pulling hundreds of offers off the market as the Bank of England is expected to hike interest rates sharply to offset the inflationary impact of the recent fall in the pound.
The UK government has announced that it will present a more detailed budget plan and independent analysis from the Office for Budget Responsibility on November 23.
“The November 23 budget will provide a first opportunity for the UK government to consider ways to provide more targeted support and to reassess tax measures, particularly those that benefit high-income earners,” the IMF said.
In response, the UK Treasury said the government was “focused on growing the economy to raise living standards for all”.
The November statement will provide further details on the government’s plan and ensure debt declines as a share of gross domestic product “over the medium term”, a spokeswoman said.
