Faisal Islam: What surprise praise for UK economy tells us about the Budget
On three occasions in the past 24 hours, top IMF officials have praised UK plans to reduce its annual levels of borrowing.
Key points
- IMF officials praised the UK's plans to reduce borrowing, unlike other G7 countries.
- The UK is the only G7 country with a serious plan to cut its deficit.
- The upcoming Budget is expected to have limited room for extra spending.
At the International Monetary Fund's annual meeting in Thailand, top IMF officials have praised the UK's plans to reduce its annual borrowing, according to BBC Business. The IMF's twice-yearly assessment showed that only the UK among the G7 group of countries has a serious plan to consolidate its borrowing over the next few years, worth nearly 4% of the size of the economy.
The UK's approach contrasts with the US, Germany and Japan, which are increasing borrowing, and Canada and Italy, which are keeping borrowing at the same level. The IMF's managing director, Kristalina Georgieva, said the UK is 'one country where action to reduce debt and deficit has been taken decisively'.
What IMF officials said
IMF managing director Kristalina Georgieva said the UK is enjoying a better growth prospect due to its decisive action on debt and deficit. Her comments followed those of the IMF's chief economist Silvana Tenreyro, who told the BBC that UK borrowing reductions 'stand out'.
The IMF's assessment showed the UK is now at the top of the G7 table for reducing deficits, a shift from the past half decade when it often had the highest borrowing rates among the G7.
The UK is actually one country where action to reduce debt and deficit has been taken decisively and we see the UK in that sense enjoying a bit of a better growth prospect
— Kristalina Georgieva
Impact on the Budget
The praise points to a Budget in a fortnight's time with limited room for extra spending. The chancellor, John Healey, will likely have to balance debt reduction with limited tax rises, and there could be a modest decrease in headroom to cushion against an expected rise in energy prices due to the Middle East conflict.
This is likely to mean disappointment for public services expecting cash injections to account for rising inflation, as suggested by the Institute for Fiscal Studies. It will also mean tough public sector pay discussions. The chancellor is expected to lean into the IMF's framing of austere plans relative to other advanced countries.
