Tax measures taken by Britain are likely to increase inequality, an International Monetary Fund spokesman said on Tuesday, urging authorities to consider providing more targeted support to affected families and businesses.
“We are closely monitoring recent economic developments in the UK and are engaged with the authorities,” the spokesman said, responding to a query from Reuters after sterling hit a record low amid growing concerns in the market.
Given the elevated inflationary pressures in many countries, including the UK, we do not recommend large, untargeted fiscal packages at this time, as it is important that fiscal policy does not work against monetary policy. the first public reaction of the IMF.
New UK finance minister Kwasi Kwarteng sent sterling and government bonds into a free fall on Friday with a budget aimed at growing the economy by cutting taxes and a sharp increase in government borrowing.
Kwarteng responded by saying he would set out medium-term debt reduction plans on November 23, along with forecasts from the independent Office for Budget Responsibility on the full scale of public borrowing.
The IMF understands that Britain’s “sizable fiscal package” was intended to help residents deal with higher energy prices and boost growth through tax cuts and supply-side measures, but such measures could put policy fiscal conflict with monetary policy, the spokesman said.
Kwarteng’s November 23 budget would provide an “early opportunity for the UK Government to consider ways to provide more targeted support and re-evaluate tax measures, especially those that benefit high-income earners,” the spokesman added.