IMF Says UK's 'Untargeted' Fiscal Measures Will Likely Boost Inequality

  • In Business
  • 2022-09-27 20:36:58Z
  • By Bloomberg

(Bloomberg) -- The International Monetary Fund criticized the UK's package of tax cuts and other steps as "untargeted" and said the measures are likely to increase inequality, weighing in after the plan sent the pound to a record low.

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"We are closely monitoring recent economic developments in the UK and are engaged with the authorities," a spokesperson for the Washington-based crisis lender said Tuesday in an emailed statement.

"Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy," it said. "Furthermore, the nature of the UK measures will likely increase inequality."

The UK government's tax-cutting blitz is drawing the concern from international policy makers, with a Federal Reserve official going as far as to say the subsequent fallout in financial markets adds to headwinds facing the world economy.

"It is rare for the fund to comment on large members' economic policies outside the context of its annual Article IV consultations," said Martin Muhleisen, a former director of the IMF's strategy, policy and review department, referring to the fund's yearly evaluations of its countries.

"The fund was relatively silent in the run-up to higher inflation in advanced economies, but it is appropriate to point out that fiscal discipline will have to play a part in bringing it down again," he said.

New Prime Minister Liz Truss has received a drumbeat of criticism for the new stimulus, which is set to land with the economy already struggling with inflation around double digits.

(Updates with context on UK economy in fourth paragraph.)

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