IMF upgrades UK growth forecast but issues fresh warning on national insurance cuts and debt
The International Monetary Fund (IMF) has said the UK economy is heading for a “soft landing” but reiterated its message to Jeremy Hunt that he should not have cut national insurance at the last two fiscal events.
In its annual check-up on the state of Britain’s economy, the Washington-based Fund also warned of a black hole in the public finances, with £30bn of spending cuts or tax rises needed to stabilise the national debt.
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The fund raised its forecast for gross domestic product growth this year from 0.5% to 0.7%, saying: “The UK economy is approaching a soft landing, with a recovery in growth expected in 2024, strengthening in 2025.”
It now expects inflation to come down to close to 2% in the coming months, and the Bank of England to cut interest rates by as much as three-quarters of a percent this year, and then another percentage point next year.
The chancellor welcomed the fund’s article IV report, saying: “Today’s report clearly shows that independent international economists agree that the UK economy has turned a corner and is on course for a soft landing.
“The IMF have upgraded our growth for this year and forecast we will grow faster than any other large European country over the next six years – so it is time to shake off some of the unjustified pessimism about our prospects.”
However, the IMF – which has warned the government explicitly in the past not to cut taxes too fast in the face of rising spending projections in future – said that the two 2p national insurance contribution (NIC) cuts at the last two fiscal events were a mistake.
“In light of the medium-term fiscal challenge,” the report said. “Staff would have recommended against the NIC rate cuts, given their significant cost.”
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The fund’s staff also believe that the government is not on track to meet its main fiscal rule, which commits it to cutting the national debt in five years time.
It believes net debt will carry on rising towards 97% of GDP in the following years, instead of falling back to 93% of GDP, as the Office for Budget Responsibility has forecast.
The fund’s double-edged report comes amid improving news for the UK.
Data released two weeks ago showed the country ended its short-lived recession with faster-than-expected growth in the first quarter of the year.
The Office for National Statistics is also expected to announce tomorrow that inflation dropped down close to the Bank of England’s 2% target in April.
That may enable the Bank to begin cutting interest rates from their 5.25% level in June or August.
The fund’s report contained a number of other recommendations for economic policy in the UK, including that the Bank of England should commit to more press conferences to explain its decisions, and that the government should consider imposing road charges to replace the revenue lost from fuel duty as electric cars become more predominant on UK roads.
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Politics
Thousands of farmers to descend on Downing Street to protest against inheritance tax changes
Thousands of farmers from across the UK are expected to gather outside Downing Street today – in the biggest protest yet against the government’s changes to inheritance tax rules.
The reforms, announced in last month’s budget, will mean farms worth over £1m will be subject to 20% inheritance tax from April 2026.
Farmers say that will lead to land being sold to pay the tax bill, impact food security and the future of British farming.
The Government insists it is “committed” to the farming industry but has had to make “difficult decisions”.
Farmers from Scotland, Northern Ireland, Wales and England will arrive in London to hear speeches from agricultural leaders.
Sky News understands TV presenter and farm owner Jeremy Clarkson, Conservative Party leader Kemi Badenoch and Lib Dem leader Ed Davey will also address crowds.
Protestors will then march around Parliament Square.
A sign in a field by the M40 near Warwick, protesting the changes to inheritance tax rules in the recent budget. Pic: PA
‘It’s really worrying’
“It’s unfortunate, as Labour had originally said they would support farmers,” said fourth-generation farmer Will Weaver, who is attending today’s rally.
His 500-acre cow and sheep farm in South Gloucestershire has been in his family since 1939.
“We’ve probably buried our head in the sand a little bit. I think, back of a fag-packet rough estimates, tax is going to be north of half a million [pounds].”
The government is keen to stress that farmers will get a decade to pay the bill – but that comes as little comfort to Will: “It’s more than our profit in any year that we’ve had in the last 10 years. Dad’s saying we’ll have to sell something. I don’t know if we’ll be able to raise that sort of money through a mortgage. It’s really worrying.”
As anger grows, there continues to be disagreement between the National Farmer’s Union and the Government over how many farms will actually be impacted by the change.
The Treasury says only the wealthiest estates, around 500 of them, will have to pay under the new rules – claiming 72% of farms won’t be impacted.
But farmers say that calculation is incorrect – citing that DEFRA’s own figures show 66% of farms are valued at over £1m and that the government has undervalued many estates.
At the same time as the rally, the NFU is addressing 1,800 of its members in Westminster before they lobby MPs.
More on this story:
Farmers warn of food price hikes
Minister downplays risk of empty shelves if farmers strike
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The president of the National Farmers’ Union says farmers are feeling
‘Understanding has been betrayed’
Max Sealy represents the NFU Dairy Board in the South of England.
“We have a detailed job to do to explain why this is wrong not just for farming, not just for the countryside and not just for our families, but for the economy in general,” he said.
“This is a bad tax – it’s been badly implemented because it will affect growth productivity in the country.”
He told Sky News Labour made promises to farmers ahead of the election.
“Both Steve Reed and Keir Starmer came to our conference two years ago and told us farming wasn’t a business like any others and that he understood the long-term nature of farming – that understanding has been betrayed,” he said.
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And the government say:
In a joint statement, Chancellor Rachel Reeves and Secretary of State for Environment, Food and Rural Affairs Steve Reed said: “Farmers are the backbone of Britain, and we recognise the strength of feeling expressed by farming and rural communities in recent weeks. We are steadfast in our commitment to Britain’s farming industry because food security is national security.
“It’s why we are investing £5bn into farming over the next two years – the largest amount ever directed towards sustainable food production, rural economic growth and nature’s recovery in our country’s history.
“But with public services crumbling and a £22bn fiscal hole that this Government inherited, we have taken difficult decisions.
“The reforms to Agricultural Property Relief ensure that wealthier estates and the most valuable farms pay their fair share to invest in our schools and health services that farmers and families in rural communities rely on.”
A Met Police spokesperson said it was “well prepared” for the protest and would have officers deployed to ensure it passes off “safely, lawfully and in a way that prevents serious disruption”.
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