January 31, 2023

The IMF has urged the UK to consider providing more targeted support to families and businesses instead of significant tax cuts.

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The International Monetary Fund (IMF) took aim at the new British financial plans that have roiled markets, warning that “large and untargeted fiscal packages” are likely to increase inequality in the United Kingdom and could undermine monetary policy.

In its first comments on Tuesday about new UK Chancellor Kwasi Kwarteng’s plans to send the pound and bonds into free fall, the IMF urged the authorities to consider providing more targeted support to families and businesses instead of big tax cuts and sharply higher government spending.

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“We are closely following the latest economic developments in the UK and are engaging with the authorities,” an IMF spokesman said in response to a request from Reuters news agency after the British pound fell to a record low amid a surge in market fears.

“Given elevated inflationary pressures in many countries, including the UK, we do not recommend large and untargeted fiscal policy at this juncture as it is important that fiscal policy does not run counter to monetary policy,” the IMF spokesman said. . first public reaction.

Kvarteng, which on Friday unveiled a budget aimed at boosting the economy through tax cuts and a sharp increase in government borrowing, reacted to the turmoil in the market by pledging on November 23 to roll out medium-term plans to reduce debt.

The global lender understands that the UK’s “significant fiscal package” was intended to help residents cope with higher energy prices and spur growth through tax cuts and supply-side measures, but “the nature of the UK’s measures is likely to increase inequality” – said the IMF. .

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The Nov. 23 Kwarteng budget will provide “an initial opportunity for the UK government to consider ways to provide more targeted support and reassess tax measures, especially those that benefit high net worth individuals,” the spokesman added.

The UK was forced to apply for an IMF loan of nearly $4 billion during the financial crisis of 1976, with IMF negotiators pushing for massive cuts in government spending at the time.

IMF officials have repeatedly warned in recent months that fiscal and monetary policy needs to be carefully recalibrated as central banks raise interest rates around the world to control inflation.