IMF warns UK of premature tax cuts, underlines possible need for future tax hikes
Date
5/22/2024 4:05:35 AM
(MENAFN) The International Monetary Fund (IMF) issued a warning to the British government on Tuesday, indicating that the UK might struggle to meet its debt targets and advising against cutting taxes before the upcoming elections later this year. The IMF also suggested that the British government might need to consider tax increases in the future to ensure fiscal stability.
In its latest forecast, the IMF raised its projection for British economic growth in 2024 to 0.7 percent, up from the 0.5 percent predicted in April. This revision reflects stronger than expected growth data from early 2024, which is likely to be welcomed by Prime Minister Rishi Sunak as he faces the challenge of gaining voter support. Despite this positive adjustment, the IMF's annual report on the British economy critiqued the Sunak administration's recent policy decisions, particularly the recent tax cuts which included a reduction in social security contributions.
The IMF advised the Bank of England to reduce interest rates two or possibly three times within the year, with each reduction being a quarter of a percentage point, even though it forecasts that inflation will return to the Bank's target by early 2025. According to the IMF, Britain is on track for a "soft landing" following a brief recession anticipated in the second half of 2023.
The report also highlighted ongoing economic challenges for the UK, predicting slow growth and an upward trajectory in national debt. It projected that the net public sector debt, excluding the Bank of England's bond purchase program, would reach 97 percent of GDP by the fiscal year 2028/2029. These findings underscore the need for careful fiscal management and the potential for future tax adjustments to maintain economic stability.
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