The International Monetary Fund (IMF) has issued a warning to the UK government, advising against additional tax cuts as it launched its latest assessment of the global economy.

The IMF expressed concerns that the current government plans for spending cuts were unrealistic, and preserving public services and investment would require higher spending than currently proposed. Chancellor Jeremy Hunt has hinted at the possibility of tax cuts in the upcoming March Budget to stimulate growth, while the IMF downgraded its growth forecast for the UK from 2% to 1.6% for the next year.

The IMF's advice comes amid a sensitive time, with discussions around the Budget and a looming general election. Treasury sources contested the IMF's guidance, stating that the improvement in UK growth prospects resulted from targeted business investment tax cuts. The disagreement underscores a potential policy divide between the government and the IMF regarding the size of the state, public spending, and taxation.

The IMF's annual health check of the UK economy highlighted its concerns about the feasibility of the government's post-election spending plans. Despite differences, Chancellor Hunt reiterated the positive impact of tax reductions on growth, while the Labour Party criticized the Conservative government for economic failures.

The UK's economic growth is anticipated to remain sluggish, ranking second-slowest among G7 major economies, with growth rates below 0.5% for the previous year and the current year. The IMF also forecasted a different trajectory for Bank of England interest rates compared to financial markets, predicting a maintenance at 5.25% in the first half of this year, followed by a half-percent cut in the second half.

As the UK awaits the Budget and the general election, the IMF's advice adds to the ongoing debate on economic policies and priorities. The government's adherence to spending plans, coupled with lower interest rates and a stronger economy, may impact the chancellor's flexibility regarding borrowing targets.

In response to the IMF's guidance, Chancellor Hunt emphasized the potential for growth strengthening in the coming years, attributing it to significant capital investment tax reliefs and National Insurance cuts. The debate over tax cuts and fiscal policies is expected to intensify in the lead-up to the Budget announcement. Photo by AgnosticPreachersKid, Wikimedia commons.