IMF urges Britain to stay on course with deficit reduction plans

what happened

Newsmetry API reports that the International Monetary Fund on Tuesday urged Britain to follow through with its plans to reduce the budget deficit. The warning came just over two weeks before Chancellor John Healey presents his first annual budget. The IMF praised Britain as the only major advanced economy that has clearly mapped out a reduction in government borrowing over the next few years.

IMF chief economist Silvana Tenreyro, a former Bank of England policymaker who served from 2017 to 2023, said the strategy should not lose momentum as debt-servicing costs rise and demands grow for additional defence spending and energy subsidies. Britain recorded a budget deficit equal to 4.4% of GDP last year and aims to match day-to-day expenditure with tax revenue in the 2029/30 financial year.

The IMF lifted its British growth forecast for this year to 1.3%, from 1.0% in July and 0.8% in April, but expects expansion to slow to 1.2% in 2027. The fund said more expensive energy and higher long-term interest rates would restrain consumption and investment. Britain’s borrowing costs remain the highest in the G7, while last week they reached their highest level since 1998. Average inflation is forecast at 3.3% in 2026 and 2.8% in 2027.

why it matters

The report keeps attention on UK gilts, sterling and the Bank of England’s next moves. Policymaker Megan Greene said the 3.75% rate was not doing enough to contain inflation. Markets assign a 90% probability to a rate increase after the November meeting and price three more increases in 2027, although similar tightening expectations earlier this year proved premature.

instruments