The International Monetary Fund warned yesterday that the United Kingdom, whose Labour government has just taken power, faces “difficult decisions” due to the high level of public debt.
According to the Washington-based institution, “the main challenge over the medium term for fiscal policy will be to improve the response to public spending needs, while at the same time stabilizing public debt.”
This warning comes within the framework of the annual review conducted by the International Monetary Fund of the country’s financial and economic situation.
“In the absence of a strong push to boost growth, stabilizing public debt will require difficult fiscal and spending decisions,” the IMF said.
The fund added that significant investments are needed in the health sector to address chronic underfunding and an aging population, as well as “more ambitious structural reforms to boost potential growth.”
The IMF also expressed the need to keep public spending under control as it approaches the equivalent of 100% of the country’s GDP.
Among the measures that could be taken, the IMF pointed to the possibility of increasing tax revenues by increasing the carbon tax, inheritance and real estate tax, and the value-added tax.
Although it expects a “soft landing” after a brief recession at the end of last year, the fund is cautious about long-term growth, which it sees as moderate, given weak productivity growth, an aging population and high levels of inactivity.
The IMF confirmed that inflation is back within target, but it expects a slight rise to 2.5% by the end of the year, although this will only be temporary.
After near-zero growth in 2023, the UK economy is expected to grow by 0.7% this year, before reaching 1.5% in 2025 and 1.7% in 2026.
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