Rishi Sunak and Jeremy Hunt are under renewed pressure to cut taxes after the International Monetary Fund (IMF) warned that the UK economy will perform the worst of any developed nation this year. Conservative MPs have again called for tax cuts following the devastating forecast.
In its latest update to the World Economic Outlook, the IMF cut its forecast for Britain’s gross domestic product (GDP) to contract by 0.6 percent.
The gloomy outlook for the coming year means Britain is well behind its counterparts in the G7 group of developed countries.
The UK is also the only country – in both advanced and emerging economies – whose economy is expected to turn around this year.
The gloomy forecast has led to further calls from Tory backbenchers for the Prime Minister and Chancellor to reduce the tax burden, which is at an all-time high.
Thatcherite Sir John Redwood said: “The Treasury needs to prove the IMF’s predictions for a weak UK economy wrong. To do that, it needs to go for growth and cut some taxes.”
Former Tory leader Sir Iain Duncan Smith told the i-newspaper: “I’ve been saying for some time that we need growth or our debts will get bigger. Targeted tax cuts will help. No wonder our economy is shrinking, we have one of the toughest fiscal tightening measures in place.”
And Conservative MP Jacob Rees-Mogg told Sky News this morning: “We were slow with the rate hikes, they should have come sooner because inflation was already at very high levels.
“We have the highest tax burden in 70 years and that is not good for economic growth.”
Government Secretary Richard Holden stressed today that the UK is “beating” the IMF’s forecast.
He told GB News: “What we’ve seen in recent years is not a prediction, this is what actually happened. Both the IMF and OECD said the UK would grow more slowly than other countries. Let’s see what actually happened. has happened.
“Actually we’ve grown faster than those countries, we’ve grown faster than Germany since 2016, we’ve grown faster than France, Italy and Japan since 2010. We’re actually outperforming these forecasts.
“I’m not saying there aren’t headwinds, internationally there certainly are, but I think Britain can perform as well as we have done and exceed these predictions, just as we have done in recent years.”
Speaking to Times Radio, Holden added: “They’ve been wrong for the last two years, the OECD has been wrong for the last two years too. I think Britain can beat those predictions. “
The IMF said Britain’s forecast decline in GDP reflects “tighter fiscal and monetary policies and financial conditions and still high energy prices weighing on household budgets”.
It comes as Mr Hunt made a key speech last week to address the UK economy and its growth prospects.
But he and Mr Sunak would resist calls for tax cuts in the March budget.
The Chancellor said: “The Governor of the Bank of England recently said that the UK recession this year is likely to be shallower than previously forecast, but these figures confirm that we are not immune to the pressures affecting almost all advanced economies.
“Short-term challenges should not cloud our long-term outlook – the UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is predicted to grow faster than Germany in the coming years and Japan.”
In a bright spot in the economic update, the IMF predicts that the global slowdown will be more superficial than originally feared.
It raised its global growth forecast from 2.7 percent in October to 2.9 percent in 2023, as it said China’s reopening after strict Covid restrictions has “set the stage for a faster-than-expected recovery.”
The IMF also said it believes global inflation has peaked and will fall from 8.8 percent last year to 6.6 percent in 2023 and 4.3 percent in 2024 as interest rate hikes by central banks begin to deflate demand. to cool and slow down price increases.
But it warned that in the UK and Europe, rising prices and the impact of measures to contain inflation will continue to weigh on the economy.
It said: “Consumer confidence and business confidence have deteriorated.
With inflation at around 10 percent or more in several euro area countries and the United Kingdom, household budgets remain under pressure.
“The accelerated rate hikes by the Bank of England and the European Central Bank are tightening financial conditions and cooling demand in the housing sector and beyond.”