Investment in new technologies and the energy transition is “badly needed” to stimulate growth in the UK and prevent the national debt from escalating to perilous levels, the International Monetary Fund (IMF) has cautioned. The warning came as Rachel Reeves travelled to Washington for her first IMF annual meeting as chancellor. The IMF highlighted the UK as an advanced economy at risk of seeing borrowing surpass pre-COVID levels significantly.
The IMF’s annual fiscal monitor report, which evaluates tax and spending strategies across global economies, forecasts that the UK’s net debt will rise from 91.6% of GDP this year to 96.4% by 2029. Vitor Gaspar, director of fiscal affairs at the IMF, described the UK’s national debt level as “high, rising and risky.” He emphasized to Sky News that high interest rates coupled with low growth necessitate public investment.
Gaspar expressed concern about the UK’s economic situation, noting that the UK has interest rates similar to those in the US, but its growth rates lag behind. He stressed the importance of public investment, especially with the challenges posed by the energy transition and technological innovation.
The IMF Chief Economist today warns against the UK adding to government borrowing – precisely what #recklessreeves is apparently planning.
— Andrew Griffith MP (@griffitha) October 22, 2024
He pointed out that the UK’s situation is part of a broader global issue, with worldwide debt reaching $100 trillion and climbing. Governments’ current fiscal plans are generally insufficient to ensure stable or declining public debt ratios. Gaspar warned against delaying necessary adjustments, stating that immediate action is required.
In remarks likely to resonate with Ms Reeves, who plans to revise the government’s debt rules to permit more borrowing in her upcoming budget, Gaspar advised not to dismiss borrowing for investment purposes. He advocated for protecting public investment within a framework of rules and budgetary procedures that promote sound macroeconomic performance.
Ms Reeves is expected to prioritize public investment in her budget, aiming to raise around £40 billion through tax increases and spending cuts, while also seeking to boost growth. According to the think tank IPPR, the UK’s total public and private investment levels are the lowest in the G7 and have been for 24 of the last 30 years.
On Thursday, she will join finance ministers from over 190 countries in Washington, with Bank of England governor Andrew Bailey also in attendance.
Frequently Asked Questions
Here are some common questions asked about this news
Why does the IMF say the UK needs to invest in new technologies?
To stimulate growth and prevent national debt escalation.
What are the IMF’s predictions for the UK’s national debt by 2029?
It will rise from 91.6% of GDP to 96.4%.
Why is public investment important for the UK according to the IMF?
Due to high interest rates and low growth.
What is Rachel Reeves expected to focus on in her budget?
Prioritizing public investment and raising around £40 billion.
How does the UK’s investment level compare to other G7 countries?
It has been the lowest for 24 of the last 30 years.
