IMF warns Britain faces 'tough choices’ to fix economy

Britain, with a new Labor government in place, faces tough choices due to high public debt, the International Monetary Fund warned on Monday.

According to the Washington-based institute, „the key medium-term challenge for fiscal policy will be to better account for public spending needs and stabilize public debt.”

The warning was part of the IMF’s annual review of the country’s economic and financial situation, known as the Article IV consultation.

„With no substantial stimulus to potential growth, stabilizing public debt will require tough tax and spending choices,” the IMF said.

In the context of long-term financing and an aging population and „more ambitious structural reforms to boost potential growth,” the fund said major investment is needed, particularly in the health sector.

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But the IMF also emphasized the need to keep public debt under control as it approaches 100 percent of the country’s GDP.

Among the measures that could be taken to address this twin challenge, the IMF pointed to the possibility of increasing government tax revenue by broadening the base of carbon tax, inheritance tax, property tax and VAT.

Although it predicted a „soft landing” after a brief recession late last year, the fund expected long-term growth to remain subdued due to weak productivity growth, an aging population and high levels of inactivity.

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On the other hand, the IMF said that increased immigration has helped offset these negative effects, despite the continued drag of post-Brexit effects, which have gradually faded over time.

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The IMF confirmed that inflation is back on target, expecting it to rise slightly to 2.5 percent by the end of the year, albeit temporarily.

Following near-zero growth in 2023, the UK economy is expected to grow by 0.7 per cent this year, 1.5 per cent in 2025 and 1.7 per cent in 2026.

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Britain opened a new chapter in its history on Friday following a landslide general election victory for Keir Starmer’s Labor party, marking the end of 14 years of Conservative government.

New Finance Minister Rachel Reeves, the first woman to hold the post, said on Monday that it was necessary to stimulate economic growth, particularly by accelerating infrastructure construction, particularly in offshore wind and housing.

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