Market turmoil

Kwarteng seeks calm after IMF attacks tax cuts

Kwasi Kwarteng
Kwasi Kwarteng: meeting bankers

Chancellor Kwasi Kwarteng will again attempt to calm markets after the International Monetary Fund delivered a stinging rebuke to the government over its tax cuts.

The organisation that works to stabilise the global economy warned that the measures are likely to fuel rather than resolve the cost-of-living crisis.

In an extraordinary statement, it said it was “closely monitoring” developments in the UK and was in touch with the authorities, urging the chancellor to “reevaluate the tax measures”.

Mr Kwarteng will meet investment banks today after announcing that his medium-term plan for the economy, due on 23 November, will ensure that UK debt falls as a share of economic output in the medium term.

Critics are concerned that Mr Kwarteng’s biggest tax cuts since 1972, costing £45bn, will be funded by government borrowing.

The markets have already reacted negatively to the government’s mini-budget or Fiscal Event which it claimed would get the economy moving by easing pressure on households and businesses.

The pound fell to record lows against the dollar and some lenders suspended mortgage deals. The Bank of England has hinted that it could intervene and has all but confirmed further sharp rises in interest rates. Food prices are also rising sharply, according to new figures from the retail sector.

The Bank of England’s chief economist Huw Pill warned: “It is hard not to draw the conclusion that all this will require significant monetary policy response.”

Shadow Chancellor Rachel Reeves said: “The government must urgently lay out how it will fix the problems it created through its reckless decisions to waste money in an untargeted cut in the top rate of tax.

“Waiting until November is not an option. The government must urgently review the plans made in their fiscal statement last week.”

SNP Westminster Leader Ian Blackford, who has demanded the recall of parliament, said: “The IMF intervention is utterly damning – and it underlines just how absurd and economically illiterate it is for Douglas Ross and the Scottish Tories to demand that the Scottish Government make the same mistakes as the UK government.”

A Treasury spokeswoman said: “We have acted at speed to protect households and businesses through this winter and the next, following the unprecedented energy price rise caused by (Vladimir) Putin’s illegal actions in Ukraine.”

Lord Frost, the former Brexit minister and close ally of the Prime Minister, hit back at the IMF’s statement, telling the Daily Telegraph: “The IMF has consistently advocated highly conventional economic policies. It is following this approach that has produced years of slow growth and weak productivity.

“The only way forward for Britain is lower taxes, spending restraint, and significant economic reform.”

Comment: Starmer’s newer Labour waits and wonders

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