British Treasury defends itself after IMF snub

The IMF has openly criticized the expensive economic support plan announced on Friday in the United Kingdom, going so far as to ask London to re-examine its measures.

The British Treasury on Wednesday defended the budget plan announced last week, which combines a lot of support for energy bills and all the tax cuts, despite sudden and unusual criticism from the IMF, Moody’s and the political class. “We are acting quickly to protect homes and businesses this winter and next, following unprecedented energy price risesthrough the war in Ukraine, justified the Treasury in a press release.

We are focused on growing the economy and the standard of living for everyone and the ChancellorExchequer Kwasi Kwarteng, who is scheduled to meet with bank officials on Wednesday,publish a medium-term budget plan on 23 November“WHO”ensuring that debt declines as a share of GDP“, he added. In an unusually critical statement, the International Monetary Fund (IMF) said that it “closely guardedthe situation in the United Kingdom, and called on London to rectify the situation.

Due to high inflationary pressures in many countries, including the UK, we do not recommend significant unfunded fiscal measures, because it is important that fiscal policy does not prevent monetary policy.warned the IMF. “The budget of November 23 presents an opportunity for the British government to (…) re-evaluate its tax measures, especially those targeting the highest incomes“, who is at risk”increasing inequality“, added the IMF in its press release in the form of a snub for the new Prime Minister Liz Truss and for Kwasi Kwarteng.

Unsustainable debt

Rating agency Moody’s is no exception, stating in a note that “huge unfunded tax cuts“by reducing public spending elsewhere”leads to higher structural deficits, which is unlikely to solve long-term growth problemsand can lead to unsustainable debt. Asked about the subject, US Treasury Secretary Janet Yellen said the US Treasury is also closely monitoring the economic situation in London.

Kwasi Kwarteng’s budget announcements on Friday caused the pound to fall to an all-time low. On Wednesday, the currency fell slightly by 0.37% to 1.0692 dollars around 09:00 GMT after rising slightly the previous day. The planned spending, of which only part of the cost – help for energy bills for six months – is counted in London, is estimated between 100 and 200 billion pounds by economists. The latter is also concerned about the lack of balancing of public accounts by planning tax cuts that coincide with the budget stimulus. Finally, the impact on the UK economy is also not calculated, although Kwasi Kwarteng promises official forecasts by the end of the year.

Investor concerns were also reflected in the bond market where the yield on 10-year bonds tightened, reaching a new high since the end of 2008 at 4.59% at the start of trading on Wednesday, and the The 30-year bond yield rose to 5.14%, the highest since 1998.

The Bank of England chose to wait until its meeting in early November to act, disappointing markets that had hoped for an emergency meeting after the pound fell. However, he indicated that the budget package “outcomeThe Conservative government of Liz Truss wants an interest rate hike like “outcome“. Britain’s opposition Labor economy leader Rachel Reeves called on Downing Street to “explain urgently how the government intends to solve the problems it has created through its unequivocal decisions“. “Waiting for November is not an option“, he insisted.

SEE ALSO – The IMF has warned of ‘risks’ threatening the economy, including the war in Ukraine and inflation

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