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IMF and Moody’s issue warnings over Chancellor’s tax cutting mini Budget

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Written by: Nick Cheek
28/09/2022
Kwasi Kwarteng’s Growth Plan has brought a stinging response from the International Monetary Fund (IMF) and a warning from ratings agency Moody’s.

In a statement last night, the IMF said that it was “closely monitoring recent economic developments in the UK and is engaged with the authorities.”

It is almost unprecedented that the global institution intervenes in the financial affairs of a G7 country.

However, given the current state of the UK economy – with a tumbling pound, soaring inflation and a tumultuous mortgage market, the IMF stated: “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.

“Furthermore, the nature of the UK measures will likely increase inequality.”

With the government set to outline its medium-term Fiscal Plan on November 23, the IMF noted that “[this] Budget would present an early opportunity for the UK government to consider ways to provide support that is more targeted and reevaluate the tax measures, especially those that benefit high income earners.”

In response to the IMF statement, an HM Treasury spokesperson defended the government’s actions saying: “We have acted at speed to protect households through this winter and the next.”

It went on to explain that the medium-term Fiscal Plan would help flesh out the Chancellor’s initial statement from Friday.

The Treasury said: “We are focused on growing the economy to raise living standards for everyone and the Chancellor has announced he will publish his medium-term Fiscal Plan on 23 November, which will set put further details on the government’s fiscal rules, including the debt falls as a share of GDP in the medium term.”

Moody’s gets moody

Meanwhile, Reuters has reported that global ratings agency Moody’s had issued a warning to the UK over its new monetary policy and said that large unfunded tax cuts were “credit negative”, and could lead to “structurally higher deficits amid rising borrowing costs, a weaker growth outlook and acute public spending pressure”.

The ratings agency added: “A sustained confidence shock arising from market concerns over the credibility of the government’s fiscal strategy that resulted in structurally higher funding costs could more permanently weaken the UK’s debt affordability.”

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