UK has room for three interest rate cuts this year, IMF says


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”.


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