IMF criticises Kwarteng again over tax cuts and energy package
Kwasi Kwarteng has come under fresh fire from the International Monetary Fund after the Washington-based organisation said his tax cuts and energy support package had made the Bank of England’s battle against inflation more difficult.
The IMF used its prestigious world economic outlook (WEO) to criticise the scale of the stimulus provided by the chancellor and the blanket nature of the price cap on gas and electricity bills.
It said the UK was on course for a sizeable slowdown in growth from 3.6% this year to 0.3% in 2023 but said its forecasts had been made before Kwarteng delivered his mini-budget on 23 September.
“The fiscal package is expected to lift growth somewhat above the forecast in the near term, while complicating the fight against inflation,” the IMF said. Financial markets expect Threadneedle Street to raise interest rates – currently at 2.25% – by at least 0.75 percentage points at its next meeting in early November.
The WEO noted the hostile market reaction to Kwarteng’s September package, which forced the Bank of England to announce emergency measures to halt a run on pension funds.
“In the United Kingdom, the announcement in September of large debt-financed fiscal loosening, including tax cuts and measures to deal with the high energy prices, was associated with a rise in gilt yields and a sharp currency depreciation that was later reversed,” it said.
Gilts yields are the return on the capital invested in buying government bonds. Rising yields mean government bonds are less in demand by investors and the government’s cost of borrowing increases.
Kwarteng will be in Washington for the annual meeting of the IMF later this week and will seek to allay concerns about the government’s growth plan.
The IMF said
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