The International Monetary Fund warned the UK government on Tuesday that the country was on track to miss its debt target and should not cut taxes before this year's election, potentially requiring future tax rises.
The IMF raised its forecast for British economic growth in 2024 to 0.7% from 0.5% in April, reflecting strong growth data since the start of 2024 and will be welcomed by Prime Minister Rishi Sunak, who is struggling to win over voters.
However, its annual report on the British economy criticized the Sunak government's policies, particularly recent tax cuts in the form of lower social security contributions.
The IMF said the Bank of England would have to cut interest rates two or three times this year, by 0.25 percentage points each time, although it predicted inflation would return to the central bank's target on a permanent basis only as early as 2025.
The fund said the UK would have a “soft landing” after a short, shallow recession in the second half of 2023.
Chancellor of the Exchequer Jeremy Hunt focused on improving the immediate economic outlook, saying the IMF agreed with his recent comments that the UK economy had turned a corner.
“It's time to shake off some unwarranted pessimism about our prospects,” he said in a statement.
But the fund said growth remains stuck at a crawl and debt is on track to rise. He forecast public sector net debt to be 97% of GDP in the 2028/29 financial year, excluding the Bank of England's bond-buying programme.
“We are really concerned, not just for the UK, but for all countries that have made extensive use of fiscal buffers that they need to do more to rebuild those buffers,” IMF Managing Director Kristalina Georgieva told a briefing.
In March, the UK's budget watchdog said the government was on track to meet its target of reducing debt as a proportion of GDP in the final year of its five-year forecast horizon.
The UK is seeing higher spending than forecasts, and the UK will need to tighten its belt – through tax hikes or spending cuts – to stabilize debt at an average of 1 percent of GDP, or roughly £30 billion ($38 billion) a year until the end of the decade.
