IMF: UK has room to cut interest rates three times this year

In its review of the UK's economic reserve soundness, the IMF slightly raised its growth forecast for this year from 0.5% to 0.7%, and predicted the growth rate in 2025 to be 1.5%.

Inflation, the UK's rate of increase in prices, is expected to be close to the Bank of England's 2% target on Wednesday, but is expected to rise slightly for the remainder of the year before steadily stabilizing around 2%. The fund said it expects to achieve its target interest rate in early 2025.

When it comes to interest rate cuts, the IMF pointed out that a balance must be struck between the risk of not cutting rates too quickly before inflation is brought under control and the risk of keeping interest rates too high, which could hinder growth.

It was recommended that the current bank interest rate of 5.25% be reduced to 4.75% or 4.5% by the end of the year.

The IMF warned that the incoming government faces difficult choices on taxes and spending and said it would not have recommended recent cuts to national insurance “given their significant costs”.

The fund assumes the government will have to spend significantly more on public services over the next five years, meaning self-imposed targets for debt reduction as a share of national income will not be met. This leaves a gap of around 1% of UK gross domestic product (GDP), or $30 billion a year.

The IMF said it would “oppose further tax cuts” considering the state of public finances.

In January the fund opposed the tax cut, but the government announced another cut to national insurance in the March budget.

IMF Managing Director Kristalina Georgieva told a news conference that Britain must strengthen its public finances, which have been hit by excessive spending during the COVID-19 pandemic.

“We are genuinely concerned, and not only in the UK. [but] All countries that have used fiscal buffers extensively must do more to rebuild them, she said.

“In a world of increasing uncertainty, you never know when governments will again be asked to borrow more to spend more.”

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