Wednesday, April 24, 2024

IMF says UK no longer headed for recession but urges against tax cuts | International Monetary Fund (IMF)


The International Monetary Fund has upgraded its forecasts for UK growth, saying the country will no longer fall into recession this year, but warned the government not to cut taxes as this would lead to higher inflation and prolonged high interest rates. Will remain

In a message to the chancellor, Jeremy Hunt, that he should maintain his planned push on public spending, the Washington-based body said tax policy must remain “aligned with monetary policy in the fight against inflation”.

Any fiscal surplus should be used to pay down government debt to “rebuild fiscal buffers”, said the annual Article IV review of the UK’s economic outlook released on Tuesday.

In a more upbeat assessment of UK growth this year, the IMF forecast 0.4% growth in the country’s GDP this year, smashing its forecast of a 0.3% contraction in February.

The economy is expected to grow at a similar pace of 1% in 2024 before picking up to 2% in 2025 and 2026.

IMF officials upgraded the UK forecast in response to the greater “resilience” of UK households and businesses during the worst inflation shock last year. He noted that company bankruptcies had begun to rise, but said the overall picture was of an economy that was improving steadily.

Inflation is expected to fall to 5% by the end of the year and below 2% by the summer of 2024, mainly in response to falling energy prices, the report said.

However, it said the Bank of England should take note of the prospect of wage growth remaining high and rising costs of professional services. The central bank should wait for these factors to subside before considering easing its monetary policy.

The report noted that an examination of historical inflation shocks “indicates that high inflation often persists”, particularly after large import price increases.

Reiterating its tough stance on inflation as the main economic enemy, the IMF noted that “there was a high prevalence of premature celebration, characterized by a decline in inflation as the initial shock dissipated, only to rebound at a higher rate.” To emerge from or become stable”.

Hunt welcomed the findings, Tweet: “Today’s IMF report shows a major upgrade to the UK growth forecast and credits our action for restoring stability and reducing inflation.”

The chancellor, who agreed with the wording of the report, is likely to use its analysis to press demands for tax cuts within Conservative ranks. Many former ministers and backbench Tory MPs believe they should use any financial headroom in the run-up to the next general election to reduce personal and business rates.

The report states: “Fiscal policy should stay the course by following the announced consolidation path. In the near term, saving any revenue overperformance … would avoid complicating the task of monetary policy, and adversely It will also help rebuild fiscal buffers depleted by a succession of shocks.

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IMF officials took a dig at last year’s change in government leadership, saying business investment has been low due to “policy and regulatory uncertainty”.

It said that Hunt had “re-established credibility after the September ‘mini-budget’ tension episode”, but that he should consider giving the independent predictor for budget accountability a greater role when judging the impact of the government budget .

Official data released Tuesday morning showed Britain borrowed more than £25 billion to balance the account last month, the second-highest ever for April, and more than expected Is.

Office for National Statistics data showed the rise was again driven by rising inflation and the cost of capping energy bills for households and businesses.

Separate data showed growth at UK companies slowed this month, while firms continued to increase prices. British economic growth remained focused on the services sector in May, according to the latest survey of purchasing managers by data provider S&P Global and the Chartered Institute of Procurement and Supply. But production levels at manufacturing companies fell at the fastest pace in four months.

This pulled down the index figure for May from 53.9 12-month high of 54.9 in April, A reading over 50 indicates growth.