Posted Sep 28, 2022, 11:02 AMUpdated on Sep 28, 2022 at 12:05 PM
After the slippage of the pound sterling and the rapid rise in government bond rates, it is the turn of an international institution to sound the alarm on the economic program of Liz Truss. The International Monetary Fund says the package of “untargeted” tax cuts and other measures in the new Prime Minister’s program are likely to increase inequality in the UK.
The “Trussonomics” notably provide for 45 billion pounds of tax cuts by 2026, largely targeted at the wealthiest. Representing nearly 1.5% of GDP, this tax relief is the most massive in the country since 1972.
“We are closely monitoring recent economic developments in the UK and are in contact with the authorities,” a spokesperson for the Washington-based crisis lender said in an emailed statement on Tuesday. “Given the high inflationary pressures in many countries, including the UK, we do not recommend large, untargeted fiscal programs at this stage, as it is important that fiscal policy does not work against the grain of the tide. monetary policy,” he added.
Fiscal discipline
The end of the “budgetary orthodoxy” announced by Liz Truss on Monday sent the pound to its lowest level since March 1985, at less than 1.1 dollars, and sent 10-year government bond rates up to over 3.7%, unheard of since 2010.
The UK government’s tax cut blitz is causing concern among international policymakers, with a US Federal Reserve official going so far as to say the subsequent fallout in financial markets is adding to the headwinds facing the global economy .
“It is rare for the fund to comment on the economic policies of large members outside the context of its annual Article IV consultations,” said Martin Muhleisen, former director of the strategy, policy and development department. IMF review, referring to the fund’s annual assessments of its countries. “The fund has been relatively silent on rising inflation in advanced economies, but it’s worth emphasizing that fiscal discipline will have to play a role in bringing it down again,” he said.
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