IMF tells Rishi: It’s too soon to hike taxes to balance books

THE International Monetary Fund yesterday warned Rishi Sunak against raising taxes as growth forecasts for the UK economy were downgraded.

But the Chancellor hit back and claimed the country must balance the books in time as financial support for hard-hit sectors cannot continue indefinitely.

The IMF praised the Chancellor’s ‘aggressive’ economic response to the coronavirus pandemic, hailing it as one of the ‘best examples of co-ordinated action globally’. But it has suggested that tax hikes could endanger the fragile economy.

However, Mr Sunak, addressing an IMF briefing, said: ‘It’s right to support the economy in the short term but over time, and in line with other major economies, we must get our public finances back on a sustainable path.’

The IMF issued a surprise downgrade to its UK economic forecasts because of the second wave of the virus.

It said the initial sharp economic rebound was being hurt by rising unemployment and stress on corporate balance sheets.

The body also dashed hopes of a ‘V-shaped’ recovery and warned the economy will not return to pre-pandemic levels in 2021. To combat this, it urged higher Treasury spending to tackle the damage caused by local lockdowns.

‘We are at a time of high uncertainty. We are not projecting a return to pre- crisis levels in 2021,’ said the IMF’s managing director Kristalina Georgieva.

‘We are keen to advise everyone to be agile and flexible in policy response as the pandemic continues.’ She praised Mr Sunak’s response but warned that the support will need to continue.

‘My message today is that continued policy support is essential to address the pandemic and to sustain and invigorate a recovery,’ she said. ‘ We welcome that authorities have committed to deliver it as long as necessary to boost expectations and confidence. The policy space exists to do this.’

Miss Georgieva cautioned it was not a time to be raising taxes or cutting spending. She told reporters that fixing the public finances could not be ignored but should happen only ‘once the private sector has durably picked up steam’.

The Washington-based organisation used its annual review of the UK economy to judge that gross domestic product (GDP) would plunge by 10.4 per cent this year, down from 9.8 per cent a fortnight ago.

The report blamed the second wave for the adjustment, while also trimming its outlook for growth during 2021 from 5.9 per cent to 5.7 per cent.

It also warned of the risks of not signing a trade deal with the EU when the Brexit transition period ends in December.

Miss Georgieva said the IMF’s expectations include a presumption that the UK and EU will reach a deal.