IMF urges UK to ‘re-evaluate’ tax cuts in biting attack on fiscal plan

The IMF has launched a caustic attack on the UK’s plan to implement £45bn in debt-funded tax cuts, urging the government to “reconsider” the plan and warning that the “untargeted” package threatens soaring inflation to awaken.

The multilateral lender said it was “closely monitoring” developments in the UK and was “involved with the authorities” after Chancellor Kwasi Kwarteng announced tax cuts last week, leading to a collapse in the value of sterling and a peak in the country’s borrowing costs.

“Given the heightened inflationary pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this time,” the IMF said in a statement. “It is important that fiscal policy does not work in the opposite direction to monetary policy.”

US Treasury Secretary Janet Yellen said the US is also “watching developments very closely”. She declined to be guided by the plan’s merits, but noted that the US and UK had “significant inflation problems and central banks focused on . . . bringing[ing] inflation down”.

She added that the financial turmoil of recent days still appeared to be confined to Britain rather than spreading to the global economy, and that financial markets that have sold off strongly in recent days were “functioning well”.

The IMF’s sharp criticism of Kwarteng’s fiscal plan came as a number of UK business leaders slammed the tax cuts, while the chief economist of the Bank of England warned it would have to respond with a “major monetary response”.

The IMF said it understood the UK government’s desire to “help families and businesses deal with energy”. [price] shock’ while ‘growth is boosted’ with tax cuts and supply-side reforms.

But it raised concerns that the tax cuts, which will disproportionately benefit high-income earners, are “likely to increase inequality”. It called on Kwarteng to use the budget on November 23 to “provide more targeted support and re-evaluate tax measures”.

Following the IMF statement, the UK Treasury Department said the November budget will contain “further details on the government’s fiscal rules, including ensuring that debt falls as a share of GDP over the medium term”. It added that the government had “acted swiftly to protect households and businesses this winter and the next”.

Related Post

The opposition Labor Party seized on the IMF statement, with shadow chancellor Rachel Reeves saying it should “ring alarm bells” at Westminster and called on the government to “urgently explain how it will solve the problems it has caused.” to resolve”.

Eswar Prasad, a former senior IMF official, said: “This is a harsh and sharp criticism that packs little punch. This is as close as the IMF’s language to a series of policies being irresponsible, unwise and ill-timed.” to name.”

Mark Sobel, a former US Treasury Department official and ex-IMF representative, said the statement was “unusual in its acuity” but agreed that the fund is “a relentless truth-teller”.

Adnan Mazarei, a former deputy director at the IMF, described the statement as “on the strong side” and said the fund was “concerned, especially about the risks of a spillover”, which he described as “tangible”. He added: “The British authorities have taken an unnecessarily risky path.”

Earlier on Tuesday, Ray Dalio, the billionaire founder of hedge fund Bridgewater, said the government was “operating like the government of an emerging country”.

Dalio’s comments came Monday after Larry Summers, the former US Treasury Secretary called the policy was “totally irresponsible” and said the violent market reaction was “a hallmark of situations where credibility has been lost”.

The pair joined Raphael Bostic – president of the Atlanta branch of the Federal Reserve – who warned this week that the UK’s plan is exacerbating economic uncertainty and raising the chances of a global recession.

Last week Jason Furman, former economic adviser to Barack Obama, tweeted: “I can’t recall a more uniform negative reaction to a policy announcement by economists and financial markets alike than UK policy”.

Additional reporting by George Parker in Liverpool


Recent Posts

Jonnie Irwin shares his family’s Marrakesh trip after being diagnosed with cancer.

Jonnie Irwin shares an insight into his stunning family trip to Marrakesh after revealing A…

4 mins ago

Musk boots KanyeWest off Twitter for the swastika Star of David Post

Recent comments from West, now known as Ye, have cost him business deals and led…

13 mins ago

Qantas baggage handlers filmed slamming passengers’ luggage onto a conveyor belt

Shocking footage shows smiling Qantas baggage handlers SLAMMING passengers' luggage on a conveyor belt: 'If…

18 mins ago

To avoid being deported, Albanian migrants could be sent home if they abuse Britain’s antislavery laws

Albanian migrants who abuse Britain's anti-slavery laws to avoid deportation could be sent back to…

22 mins ago

Jani and Jackson star as Saurashtra wins Vijay Hazare Trophy

Saurashtra 249 for 5 (Jackson 133*, Desai 50, Jani 30*, Ostwal 2-20, Choudhary 2-38) Maharashtra…

32 mins ago

How to add a credit line as a Bitwarden vault item. Why you should

SARINYAPINNGAM/Getty Images/iStockphotoBitwarden is one of many password managers on the market, most of which include…

34 mins ago