Following the recent turmoil of the pound sterling, we examine the criticism from the IMF in the Government’s handling of worrying monetary matters.
Today, the International Monetary Fund (IMF) has released a statement slamming the UK Government for last week’s mini-budget. The IMF has stated that they are “closely monitoring” the situation and have urged the Chancellor to “re-evaluate” his proposals.
The IMF is one of the most important economical institutions in the world, with its key aim to support financial equality across all United Nations members and to prevent economical collapse. The fact they have felt the need to step in and make a statement does not bode well for the new Prime Minister.
Further financial turmoil in the United Kingdom
Upon the mini-budget announcement last Friday, the UK has entered into a new stage of financial uncertainty. The pound plummeted to an all-time low against the dollar, and interest rates are anticipated to significantly rise.
The pressure of the situation has left thousands of families across the country panicking about their future, while the super-rich have been granted a 5% tax cut. The IMF has stated that Chancellor, Kwasi Kwarteng, should instead consider an approach that will benefit those who actually need it.
“Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy. The nature of the UK measures will likely increase inequality,” a spokesperson for the IMF said.
They have suggested that the Chancellor uses his planned “fiscal plan” announcement on November 23rd to outline a different approach to what he suggested last week.
The UK Treasury has responded to the statement by the IMF by confirming that the November budget would “set out further details on the government’s fiscal rules” and they would “ensure debt falls as a share of GDP in the medium term”.
They were also quick to remind everyone of the fact they have “acted at speed to protect households and businesses through this winter and the next.” Unfortunately, the measures announced to curb the energy crisis were also the result of mass borrowing which means in the long-term, UK citizens will be worse off due to soaring bank of England interest rates.
Scotland’s Deputy First Minister, Jon Swinney, has said that he is “very concerned” by the statement from the IMF. He added:
“I think the warnings are very stark about the folly of the decision that have been taken by the UK Government.”
“I think the IMF’s criticism of the unfunded tax cuts which simply increase the cost of borrowing – and we’re already seeing that with punishing increases in interest rates which will affect people who have mortgages around the country and some of that increase in mortgage rates will dwarf the small savings that will be made in the unfunded tax cuts that been made.”
Like the IMF, Swinney has also urged the Chancellor to reconsider his plans.
Labour’s Shadow Chancellor, Rachel Reeves, has said that the IMF’s statement should “set alarm bells ringing” and has pressed the government to “lay out how it will resolve the problems it has created.”
The IMF’s history with the United Kingdom
While the IMF are “closely monitoring” the economical situation in the United Kingdom, it’s important to remember that they have intervened before.
In 1976, Britain borrowed $4bn from them during another financial crisis caused by a conservative government’s “speed for growth” budget which saw an inflation boom. At the time, it was the largest loan the IMF had ever provided.
While it is unclear whether another loan will be given to the United Kingdom from the IMF, it’s worth noting that the pound had also plummeted to new depths in 1976, much like it has today.
Many people will agree that borrowing £45bn for a mini-budget that largely benefits bankers and the super-rich is a ludicrous way to try and combat the financial mess the country finds itself in. If a government u-turn isn’t made, then it’ll be a surprise to see Liz Truss make it to Christmas in her new position as Prime Minister.