IMF cautions Reeves’ plan to ease war impact – Daily Business

Rachel Reeves: we have to respond

The Iran war will affect the UK more than other leading economies, the International Monetary Fund (IMF) has forecast.

Soaring energy prices will also push inflation beyond the Bank of England’s target, it said in its latest economic outlook.

The IMF cut its estimate for UK growth this year to 0.8%, from the 1.3% prediction made in January before hostilities began.

It expects fewer interest rate cuts, and believes the impact of higher energy prices would linger into next year.

It also warned the war threatened to throw the world economy “off course” and a prolonged conflict risked a global recession. The IMF urged central banks to be cautious over raising interest rates to counter higher inflation.

The UK is forecast to have the joint highest inflation in the G7 this year, of 3.2%, and next, of 2.4%. alongside the US in 2026 and Italy in 2027.

Responding to the forecast, Chancellor Rachel Reeves said: “The war in Iran is not our war, but it will come at a cost to the UK. These are not costs I wanted, but they are costs we will have to respond to.

“We entered this conflict in a stronger position because of the choices this government took to build economic stability, but there is more to do.”

She said has vowed that her economic approach to this crisis will be both responsive to a changing world and responsible in the national interest, keeping inflation and interest rates in check to protect households and businesses

But IMF chief economist Pierre-Olivier Gourinchas said countries including the UK should be “very cautious” about introducing assistance programmes.

He said that despite government work to rebuild financial buffers the UK had much less room to move now, due to the war.

“There isn’t really a lot of room to go and spend in order to support households and businesses,” he said.

If the UK were to bring in support measures, he said it should “stay within the envelope” of current government spending.

Shadow chancellor Sir Mel Stride said Ms Reeves had “no one to blame but herself” for the size of the IMF’s downgrade, after increases to employers’ National Insurance and business rates.

“Her ‘plan’ to keep costs down has left us with the highest inflation in the G7, with businesses closing and the cost of living skyrocketing,” he added.

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