The International Monetary Fund (IMF) has criticised UK Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng’s economic policies, warning that “large and untargeted fiscal packages” would likely deepen inequality in Britain.
In a rare intervention, the IMF took aim at the British government after the UK chancellor’s mini-Budget on Friday caused sterling and bonds to plummet and gilt yields to soar, raising the cost of borrowing.
The market turmoil started after investors were spooked by Mr Kwarteng’s plan to offer tax cuts to the richest and to increase state expenditure dramatically.
“We are closely monitoring recent economic developments in the UK and are engaged with the authorities,” an IMF spokesperson said.
“Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy,” they added.
The global lender predicted that the UK’s new measures would “likely increase inequality” rather than achieving the government’s aim of creating a prosperous Britain.
It urged the British chancellor to change tack when he gives a statement on November 23, a promise he made earlier this week in a bid to calm the markets.
“The 23 November budget will present an early opportunity for the UK Government to consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high income earners,” the IMF said.
Commentators noted that the IMF’s statement closely resembled warnings it typically gives to emergency economies in the throes of a current account crisis.
In response to the organisation’s rebuke, a Treasury spokesperson said: “We have acted at speed to protect households and businesses through this winter and the next, following the unprecedented energy price rise caused by (Vladimir) Putin’s illegal actions in Ukraine.”
They insisted ministers were “focused on growing the economy to raise living standards for everyone”, and promised that the chancellor would set out measures in November to ensure that debt falls as a share of GPD “in the medium term”.