IMF Boosts UK Growth Forecast But Warns Against Insurance Cuts; Suggests Road Charges to Offset Electric Shift

The International Monetary Fund has revised its growth predictions for the UK economy upwards, while also issuing a new caution regarding the implications of reductions in national insurance and increasing debt levels. The Fund, headquartered in Washington, additionally recommended that the Bank of England increase the frequency of its press conferences to better clarify its policy choices. Furthermore, it suggested that the UK government should introduce tolls on roads as a means to compensate for the decline in fuel tax revenue, which is

Economics and data editor @EdConwaySky

Tuesday, May 21, 2024, 11:

The International Monetary Fund (IMF) has indicated that the UK economy is on track for a gentle slowdown, while repeating its advice to Jeremy Hunt against reducing national insurance in the recent fiscal announcements.

In its yearly review of the UK's economic health, the Washington-based Fund also cautioned about a significant deficit in public finances, indicating that £30bn in reductions in spending or increases in taxes is necessary to stabilize the national debt.

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The organization has increased its projection for this year's GDP growth from 0.5% to 0.7%, noting, "The UK economy is nearing a gentle deceleration, with growth anticipated to pick up in 2024 and gain further momentum in 2025."

The forecast now anticipates that inflation will decrease to approximately 2% soon, with the Bank of England projected to reduce interest rates by up to 0.75% within this year, followed by an additional 1% cut next year.

The chancellor expressed approval of the fund's article IV report, stating, "Today's report definitively confirms that impartial global economists are in consensus that the UK economy has pivoted positively and is on track for a smooth adjustment."

"The International Monetary Fund has revised its projections for our economic growth this year, predicting that we will expand more rapidly than any other major European nation through the next six years. Therefore, it's time to dispel some of the unwarranted negative views regarding our future prospects."

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The International Monetary Fund (IMF) has previously cautioned the government against rapid tax reductions given the anticipation of increased future expenditures. The IMF criticized the decision to reduce national insurance contributions by two pence at the most recent fiscal meetings, labeling these actions as errors.

The report highlighted that considering the fiscal challenges over the medium term, the staff would have advised against reducing the NIC rates due to their substantial expense.

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The employees of the fund also think that the government is likely to miss its primary financial target of reducing the national debt within five years.

The report predicts that net debt will continue to increase, reaching 97% of GDP in the coming years, rather than decreasing to 93% of GDP as previously projected by the Office for Budget Responsibility.

The fund's mixed review arrives alongside positive developments for the UK.

Recent statistics indicated that the nation emerged from its brief recession, experiencing a surprisingly strong economic expansion in the early months of the year.

The Office for National Statistics is anticipated to reveal tomorrow that inflation approached the Bank of England's target of 2% in April.

This could allow the Bank to start reducing interest rates from their current 5.25% as early as June or August.

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The report from the fund included several other suggestions for the UK's economic strategy. It advised that the Bank of England should hold more press briefings to clarify its choices, and it recommended that the government think about introducing tolls on roads to compensate for the decreasing income from fuel taxes as electric vehicles increasingly dominate the UK's roadways.

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