Interest rate cuts this year, suggests IMF

The International Monetary Fund has suggested that the British economy could accommodate three interest rate cuts this year, with Kate cuts taking base rate back down to 3.5%.

However, the IMF has not given a clean bill of health to the government’s economic strategy.

The IMF said the UK's economy was "approaching a soft landing” after last year's mild recession and Ali Abbas, the IMF UK mission chief, said the Fund recommended cutting the current Bank of England rate of 5.25% to either 4.75% or 4.5% by the end of the year.

It also recommends further cuts in 2025, taking the rate as low as 3.5%.

He says: “Our recommendation is for 50-75 basis points [0.5-0.75% points] this year, plus we project and this is also this is our recommendation of 100 basis points [1% point] cuts in 2025.” But he wanted the UK still faced “difficult choices” on taxes and spending, and he criticised Chancellor Jeremy Hunt’s recent cuts to National Insurance "given their significant cost".

The Fund upgraded its growth forecast marginally for this year from 0.5% to 0.7%, and predicted growth of 1.5% in 2025.

It warns there could be a £30 billion black hole in economic plans in the years ahead and urges the government to raise revenue via measures including reforms to VAT, Capital Gains and Inheritance Tax, as well as taxing electric vehicles and charging for a wider range of public services.

“The government faces pressing service delivery and investment needs which, in [IMF] staff’s view, will be difficult to accommodate within the official medium-term spending plans” it says.

The IMF is an international organisation with 190 member countries, including the UK. They work together to try to stabilise the global economy: one of the Fund's jobs is to advise its members on how to improve their economies.

Today’s official government figures on inflation are expected to show it dropping to much closer to a 2.0% target - but it is considered likely that inflation will rise again, slightly, later in 2024.