The UK government’s proposal for tax cuts has drawn direct criticism from the International Monetary Fund, which also issued a warning that the measures could exacerbate the cost-of-living crisis. The IMF said in a statement that was unusually blunt that the proposal would probably increase inequality and add to pressures driving up prices.

Markets have already expressed concern over the plans, which has caused the pound to fall.

The government claims that the actions will spark economic expansion.

The nation’s largest tax reform package in fifty years was unveiled by Chancellor Kwasi Kwarteng on Friday. Government borrowing will be used to pay for the £45 billion cut.

As part of its efforts to stabilize the world economy, the IMF serves as an early warning system for the economy.

It acknowledged that the tax cuts included in the package were intended to spur economic growth, but it cautioned that this could hasten the rate of price increases that the UK central bank is working to slow down.

“Furthermore, the nature of the UK measures will likely increase inequality,” it said.

The IMF claimed it had the chance to “re-evaluate” tax policies, “especially those that benefit high income earners,” after the government published a fiscal plan on November 23.

The UK government’s proposals, among other things, would eliminate the top rate of income tax and the cap on bankers’ bonuses.

Days of financial turmoil followed the announcement on Friday as investors dumped the pound and UK debt. The pound hit record lows against the dollar on Monday.

Due to the unpredictability, some of the largest lenders in the nation suspended mortgage transactions.

“We are focused on growing the economy to raise living standards for everyone,” the UK Treasury said.

It also noted that Kwarteng was scheduled to release his economic medium-term plan on November 23. This plan would call for lowering UK debt’s long-term proportion to GDP.

The IMF’s statement was criticized by Lord Frost, a close friend and former minister for Brexit under Prime Minister Liz Truss.

“The IMF has consistently advocated highly conventional economic policies. It is following this approach that has produced years of slow growth and weak productivity. The only way forward for Britain is lower taxes, spending restraint, and significant economic reform,” he said in an interview to the Daily Telegraph.

In response to the decline in the value of the pound, the Bank of England indicated on Tuesday that it was prepared to raise interest rates. Huw Pill, the Bank’s chief economist, stated that the Bank “cannot be indifferent” to the recent developments.

He claimed that in order to defend the pound, the Bank would need to make “a significant monetary policy response.”

Former US Treasury Secretary Larry Summers described the UK’s situation as “very ominous.”

“I can’t in all honesty remember a time when a set of policy announcements from a G7 country elicited so negative a response both from markets and from economic experts,” he said.

“When a country sees its interest rates rise by [as much as they have] in two days at the same time that its currency is falling in a major way, that is a sign that there has been a major loss of market credibility and market confidence.

“The kind of warning that Britain received from the IMF today is a kind of warning that comes much more frequently to emerging markets with new governments than to a country like Britain.”

The UK’s plan for “large unfunded tax cuts” was “credit negative,” according to the credit rating agency Moody’s, and would result in higher, ongoing deficits “amid rising borrowing costs [and] a weaker growth outlook.” The UK’s credit rating remained unchanged by Moody’s.

(Adapted from BBC.com)

Categories: Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized