IMF advises against further tax cuts labelling them 'unrealistic'

The International Monetary Fund have "advised the UK against further tax cuts" after Jeremy Hunt promised them during the general election campaign. The IMF suggested that the Treasury's pencilled spending cuts that would help pay for tax breaks were unrealistic.

The latest comments from the IMF came as it downgraded its forecasts for UK growth next year from 2% to 1.6%, partly as a statistical consequence of growth having been revised higher during the pandemic years. This better performance leaves less room for growth to catch up in later years.

The UK's growth last year and this year is expected to remain sluggish at below 0.5% and 0.6% respectively, the second-slowest in the G7 major economies, behind Germany.

The IMF also assumes fewer Bank of England rate cuts than in financial markets, calculating that rates will remain at 5.25% in the first half of this year. The Bank is then expected to cut by half a per cent over the second half of the year.

Treasury sources said the government was slapping down the IMF for its advice on tax cuts, which derives from the organisation's research for its annual in-depth health check of the UK economy.

It comes at a sensitive time ahead of the Budget and a general election where the chancellor hopes to mark out a key dividing line with the opposition on a smaller state, with lower public spending and lower taxes. The Treasury sources said that the improvement in UK growth prospects arose because of the chancellor's targeted business investment tax cuts.

The Institute for Fiscal Studies said recently that planned tax cuts from the government needed to be scaled back, saying: "Tax cuts today add to the risk of tax rises or spending cuts tomorrow."