The IMF has openly criticized the costly economic support plan announced by the UK on Friday, even calling on London to reassess its measures.
The British Treasury on Wednesday defended its budget plan announced last week, which combines massive support for energy bills and outright tax cuts, despite abrupt and unusual criticism from the IMF, Moody’s and the political establishment. “We act quickly to protect homes and businesses this winter and next winter, after unprecedented increases in energy pricesfor the war in Ukraine, justified Treasury in a press release.
“We are focused on growing the economy and living standards for all and ChancellorExchequer Kwasi Kwarteng, who will meet with bank officials on Wednesday,will publish a medium-term budget plan on November 23” who “ensure that debt decreases in its share of GDP“, he adds. In an unusually critical statement, the International Monetary Fund (IMF) said so “Look carefullythe situation in the UK, and calls on London to rectify the situation.
“Given the high inflationary pressures in several countries, including the UK, we do not recommend significant unfunded fiscal measures, as it is important that fiscal policy does not get in the way of monetary policy.warns the IMF. “The November 23 budget presents an opportunity for the British government… to reassess its fiscal measures, particularly those targeting the top earners.“who risks”increase inequalities“, adds the IMF in its press release in the form of a snub to the new Prime Minister Liz Truss and Kwasi Kwarteng.
The rating agency Moody’s is no exception, stating in a note that “large unfunded tax cuts“for cuts in public spending elsewhere”will lead to higher structural deficits, which are unlikely to solve long-term growth problemsand could lead to unsustainable debt. Asked about the issue, US Finance Minister Janet Yellen said the US Treasury was also closely monitoring the economic situation in London.
Kwasi Kwarteng’s budget announcements on Friday caused the pound to plunge to an all-time low. On Wednesday, the coin was down slightly 0.37% at $1.0692 around 09:00 GMT after rising a bit the day before. The planned expenditure, of which only part of the cost – aid for six months’ energy bills – has been quantified by London, is estimated by economists between 100 and 200,000 million pounds. The latter are also concerned about the lack of rebalancing of public accounts by planning tax cuts in parallel to budget stimulus. Finally, the impact on the British economy has not been calculated either, although Kwasi Kwarteng has promised official forecasts for the end of the year.
Investor concerns were also palpable in the bond market, where the 10-year bond yield was tightening, hitting a new high since late 2008 at 4.59% at the start of trading on Wednesday, and the 30-year bond yields soared to 5.14%, the highest since 1998.
The Bank of England chose to wait until its early November meeting to act, disappointing markets that had expected an emergency meeting after the pound tumbled. However, he indicated that the budget package “consequentof the Conservative government of Liz Truss would require an interest rate increase as would “consequent“. The British opposition Labor economic leader, Rachel Reeves, called in Downing Street that “urgently explain how the government intends to solve the problems it has created with its reckless decisions“.”Waiting for November is not an option“, she insisted.
SEE ALSO – The IMF warns of “risks” that threaten the economy, including the war in Ukraine and inflation
#British #Treasury #defends #IMF #snub