The International Monetary Fund (IMF) has urged Chancellor Rachel Reeves to revise the UK’s current fiscal rules to avoid forced emergency spending cuts in times of economic downturn. In its latest annual review of the UK economy, the IMF also upgraded the country’s growth forecast for 2024, projecting a 1.2% increase—up from the previously expected 1.1%.
The IMF noted that the current fiscal framework, inherited from the former Conservative government, leaves limited flexibility, with even minor downgrades to economic forecasts potentially forcing painful short-term savings. To mitigate this, it suggested downgrading the significance of the Office for Budget Responsibility’s (OBR) spring report and implementing a more flexible, long-term approach to public finance assessments.
Calls Grow for Easing Fiscal Constraints
Labour backbenchers have joined the IMF in pressing the Treasury to loosen tight fiscal controls. Many have criticised the recent spring statement, in which Reeves slashed over £5 billion from the welfare budget to meet strict spending rules. The IMF echoed concerns about frequent fiscal adjustments, citing pressure from markets and media whenever “small revisions” affect fiscal headroom.
Reeves now faces renewed criticism from Reform UK leader Nigel Farage, who pledged to reinstate the winter fuel allowance—a benefit partially cut under the current Labour government. Meanwhile, Education Secretary Bridget Phillipson hinted the two-child benefit cap could also be lifted, further intensifying the debate over fiscal policy.
UK Economic Outlook Improves, But Risks Remain
Despite fiscal tensions, the IMF praised Reeves for her disciplined approach to managing day-to-day government spending and for reallocating surplus funds to public investment. The Fund cited these steps as key to maintaining investor confidence amid global economic uncertainty and Donald Trump’s renewed trade tariff threats.
Luc Eyraud, the IMF’s UK mission chief, cautioned that high debt levels and soaring interest payments posed serious risks. “Debt has doubled in 15 years. The interest bill now exceeds the capital budget,” he said, reinforcing the importance of sustainable deficit reduction.
IMF officials concluded their three-week UK review by advising the government to stay on course with its medium-term fiscal plan, despite rising pressures to ease the rules.
Reeves Welcomes Growth Forecast Upgrade
Responding to the IMF’s assessment, Reeves highlighted recent economic gains under Labour leadership. “The UK was the fastest-growing economy in the G7 in Q1,” she said. “The IMF’s upgraded forecast reflects the success of our plan for change—with three new trade deals, rising wages, and inflation-beating income growth for working people.”
However, the IMF warned that risks to the forecast remain tilted to the downside, particularly if global markets react negatively to U.S. fiscal instability and further trade tensions.
