British Finance Minister Jeremy Hunt said earlier this month that Britain would not fall into recession this year.
Hannah Mckay | Reuters
LONDON – The British government should not introduce further tax cuts this year, the International Monetary Fund said on Tuesday, as its chief economist argued that the government budget needs the money for public services and growth-friendly investments.
“What we are seeing in the UK and a number of other countries is the need to put in place medium-term financial plans that take into account a significant increase in spending pressures,” Pierre-Olivier Gourinchas said during a press conference.
In the UK, he said, this included spending on the National Health Service, social care, education and climate change, as well as measures to boost growth while preventing a rise in debt.
“In this context, we would advise against further discretionary tax cuts, such as those currently planned or discussed,” he said.
An IMF spokesman said separately that the UK has higher spending needs on public services and investment than is currently included in the government’s budget plans. The IMF has recommended that the UK increase taxes on carbon emissions and property, close loopholes in wealth and income taxation and reform rules for setting pension levels.
British Chancellor of the Exchequer Jeremy Hunt will announce his latest budget in early March, in what may be the last major budget announcement before a general election. The timing of the vote is uncertain, but it must be called by the Conservative government sometime this year.
The Conservatives face an uphill battle, with the opposition Labor Party ahead in most polls.
Hunt announced several tax cuts in his fall budget and made several suggestions that he would like to introduce more in the spring.
Net borrowing by the UK public sector has fallen sharply and was around half of the previous year’s level in December 2023, due to higher VAT (sales tax) and income tax receipts, as well as lower spending.
The IMF on Tuesday forecast Britain’s economy to grow 0.6% this year, up slightly from the 0.5% estimate for 2023. He revised his 2025 forecast by 0.4 percentage points to 1.6%, saying inflation would ease financial conditions and allow real incomes to recover.
The downgrade, it said, “reflects the reduced scope for growth to catch up given recent statistical upward revisions to output levels during the pandemic period.”
Gourinchas told CNBC on Tuesday that despite a weak growth outlook for the year, the U.K. received positive news on inflation, which is expected to average 2.8%.
“We’re at the point where we think the Bank of England will be in a position like the Federal Reserve [European Central Bank] “We need to cut interest rates when inflation finally reaches its target,” he said.
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2024-01-30 16:51:24
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