LONDON (BBC News): The International Monetary Fund (IMF) has doubled down on criticism of the chancellor’s mini-budget, days after warning it will fuel rising prices.
The body, which works to create global financial stability, admitted tax cuts announced by Kwasi Kwarteng would lift economic growth in the short-term.
But it said the cuts would “complicate the fight” against the cost-of-living crisis.
It also warned that “for many people 2023 will feel like a recession”.
Inflation, which measures how the cost of living changes over time, is expected to peak at about 11.3% before the end of the year in the UK, according to its latest report on the outlook for the global economy.
The most recent figures included in the report by the influential financial institution do not fully, however, take into account the chancellor’s recent mini-budget.
Economic growth in the UK is set to grind to a near halt next year, growing by 0.3%.
That marks a 0.2% downgrade from the IMF’s July forecast, and a sharp fall from the 3.6% rate of growth for the UK economy expected in 2022.
The body, which works to stabilise the global economy, has also downgraded its economic growth forecasts due to the impact of Russia’s Ukraine invasion.
After Kwasi Kwarteng unveiled plans for huge tax cuts, the IMF criticised the plans warning they were likely to increase inequality and add to pressures pushing up prices.
It was an unusually outspoken statement from the IMF which works to stabilise the global economy and one of its key roles is to act as an early economic warning system.
It said it understood the government’s package aimed to boost growth, but it said that the tax cuts could speed up the pace of price rises, which the UK’s central bank is trying to bring down.
In its latest report on Tuesday, economic counsellor Pierre-Olivier Gourinchas said: “As storm clouds gather, policymakers need to keep a steady hand”.
It acknowledged that that biggest tax package in 50 years set out by the chancellor would “lift growth somewhat in the near term”, despite the fact it sparked turmoil on financial markets.
It also added that the measures would “complicate the fight” against inflation.
The IMF also cautioned that governments would need to protect the least well-off from the impact of higher prices.
Poorer households often spend relatively more than others on food, heating, and fuel, it pointed out – all areas that have seen steep price rises as energy and grain exports have been restricted after the invasion of Ukraine.
And countries that are reliable on Russian gas in Europe are being hit particularly badly. Germany’s economy, for example, is now predicted to contract next year.
Meanwhile, Russia’s economy is expected to contract by 2.3% next year, the biggest fall of all the nations included in the projections.
Speaking on Monday, IMF boss Kristalina Georgieva noted that growth was also being dragged down in China by continued Covid restrictions, while in the US rising interest rates were “starting to bite”.
At the first in-person meetings between the IMF and the World Bank since the pandemic, she said countries could “reduce the pain ahead of us in 2023” by acting together.
She added that the IMF will be pushing for major economies to carry on with their efforts to bring down the cost of living, even if they have a negative impact on economic growth.
If they don’t do enough, she said, “we are in trouble. We cannot afford inflation to be a runaway train.”
She also said that measures should be “well targeted” to ensure they don’t push prices up even further.
Ahead of travelling to IMF meetings in the United States, the chancellor announced on Monday that he will bring forward his plan for balancing the government’s finances by almost a month to 31 October, in a bid to reassure markets.