UK interest rates likely to stay high
THE UK is forecast to avoid a recession this year, but high interest rates will likely be needed for some time yet to tackle inflation, according to the International Monetary Fund (IMF).
The IMF, in a new assessment of the UK economy, upgraded growth to 0.4% this year after initially forecasting last month that UK output was expected to contract by 0.3%.
But the more positive projection came alongside warnings of a “subdued” outlook for growth and the threat posed by ongoing global uncertainty.
Chancellor Jeremy Hunt pointed to the IMF report as a vindication of the Government’s efforts to “restore stability and tame inflation”.
“It praises our childcare reforms, the Windsor Framework and business investment incentives,” he said.
“If we stick to the plan, the IMF confirm our long-term growth prospects are stronger
than in Germany, France and Italy - but the job is not done yet.”
IMF managing director Kristalina Georgieva praised Mr Hunt and Prime Minister Rishi Sunak, but had bad news for the backbench Conservative MPS pushing for tax cuts from the Treasury.
Ms Georgieva said there was currently “no intention to go for tax cuts” in the UK.
“The Government is rightly prioritising the alignment of fiscal policy with monetary policy.
“We think that alignment will have to stay for quite some time because the Government is aiming to get inflation down by half by the end of the year.
“That is not a trivial goal, but in our view, it is achievable.”
She stressed multiple times the importance of tackling inflation, as she avoided giving an endorsement of tax cuts in the near future.
“Of course it is attractive to look into ways in which the tax burden is lighter, to inject more investment opportunity.
“But only when it is affordable and at this point of time, neither it is affordable nor it is desirable because if you want to constrain demand and increase supply, you have to think what are the right policy measures for it.”