AceBusinessDesk – The Bank of England has scope to cut interest rates up to three times this year, the International Monetary Fund (IMF) has said.
Ace Press News From Cutting Room Floor: Published: May.24 2024: Economics editor & Business reporter, BBC News: Published: 21 May 2024, 11:16 BST: TELEGRAM Ace Daily News Link https://t.me/YouMeUs2
Its comment came as it upgraded the UK’s growth forecast for 2024, saying the economy is “approaching a soft landing” after last year’s mild recession.
However, it advised against any further tax cuts as it warned of a potential £30bn hole in the public finances.
Chancellor Jeremy Hunt said the report “clearly shows that independent international economists agree that the UK economy has turned a corner”.
Mr Hunt added that the IMF had “forecast we will grow faster than any other large European country over the next six years – so it is time to shake off some of the unjustified pessimism about our prospects”.
The IMF is an international organisation with 190 member countries, including the UK. They work together to try to stabilise the global economy.
One of the Fund’s jobs is to advise its members on how to improve their economies.
‘Difficult choices’
In the IMF’s preliminary health check of the UK’s economy, it upgraded the growth forecast marginally for this year from 0.5% to 0.7%, and predicted growth of 1.5% in 2025.
While UK inflation, the rate at which prices increase, is expected to fall close to the Bank of England’s target of 2% on Wednesday, it is then set to rise a little over the course of the rest of the year, before “durably” settling at the target rate in early 2025, the Fund said.
When it came to interest rate cuts, the IMF noted the Bank had to balance the risk of not cutting too quickly before inflation is under control, against that of keeping rates too high, which could hit growth.
It recommends cutting the current Bank rate of 5.25% to either 4.75% or 4.5% by the end of the year.
The IMF warned the next government faced “difficult choices” on taxes and spending, and said it would not have recommended the recent cuts to National Insurance “given their significant cost”.
The Fund assumes that the government will have to spend significantly more on public services over the next five years, meaning that its self-imposed target for falling debt as a share of national income will not be met. This leads to a gap of about 1% of UK gross domestic product (GDP), or £30bn a year.
Given the state of the public finances, the IMF said it would “advise against additional tax cuts”.
The report’s key long-term concern was a lack of workers arising from long-term illness and fewer foreign workers.
It suggested that if there was a new global financial crisis, “a shock to UK sovereign risk premia can not be ruled out” which would push up interest rates.
The IMF suggests extra tax revenue from road usage, VAT, inheritance and property should be required.
It also advises the end of the triple lock on the state pension – a government promise to raise it by the rate of earnings, inflation or 2.5%, whichever is highest – and instead pegging increases to inflation alone.
The IMF also pointedly advised the government to “stay the course on climate policy”, after recent delays to net zero policy timetables, for example, on electric cars.
The annual report is the conclusion of a team of IMF economists who have spent months meeting policymakers and businesses as part of what is known as the Article IV process.
But economic forecasters are not always right with their predictions and the IMF and UK government have disagreed in the past over previous projections.
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