Market News

UK prime minister Rishi Sunak could have his work cut out in terms of his plans to cut taxes before the next election, as new remarks by the International Monetary Fund (IMF) lay out the importance of funding for public services.

A spokesperson for the fund said: "Preserving high-quality public services, and undertaking critical public investments to boost growth and achieve the net zero targets, will imply higher spending needs over the medium term than are currently reflected in the government's budget plans."

"Accommodating these needs, while assuredly stabilizing the debt/GDP ratio, will already require generating additional high-quality fiscal savings, including on the tax side," they added.

"The IMF has recommended strengthening carbon and property taxation, eliminating loopholes in wealth and income taxation, and reforming the pensions triple lock. It is in this context that staff advises against further tax cuts.”

The remarks come as IMF rolls out its latest World Economic Outlook update, in which it cut its growth forecast for the UK in 2025. It also comes as Britain heads into a key election year.

Chancellor Jeremy Hunt said that it is "too early to know whether further reductions in tax will be affordable in the Budget, adding: “The IMF expect growth to strengthen over the next few years, supported by our introduction of the biggest capital investment tax reliefs anywhere in the world, alongside National Insurance cuts to improve work incentives.

"We continue to believe that smart tax reductions can make a big difference in boosting growth.”

The forecasts shows GDP rising from 0.5% in 2023 to 0.6% in 2024 and 1.6% in 2025. The IMF's estimate for 2025 is 0.4 percentage points below a previous estimate made in October.

It puts the UK among the worst performers in the G7 group of economies; the second-worst performer in the G7 this year and the joint third-worst performer in 2025.

The IMF said the change is largely due to a revision to official data, rather than a greying economic picture, however.

Meanwhile, the global economy is expected to grow by 3.1% this year and 3.2% next year.

Britain's economic prospects and the Conservative party's record during its time in office since 2010 are frequent topics of political debate with a national election expected in the second half of this year.

Overall the IMF forecasts — part of a broader global update — show British gross domestic product (GDP) growth picking up from 0.5% in 2023 to 0.6% in 2024 and 1.6% in 2025, as falling energy prices lower inflation, boosting disposable incomes and allowing the Bank of England to cut rates in the second half of 2024.

The IMF's latest estimate for 2025 is 0.4 percentage points below a previous estimate made in October, reflecting "reduced scope for growth to catch up in light of recent upward statistical revisions to the level of output through the pandemic period."