IMF Recommends Cutting UK Interest Rates to 3.5% by End of 2025

The International Monetary Fund (IMF) has advised that UK interest rates should be reduced to 3.5% by the end of next year. This recommendation could lead to the Bank of England making up to seven rate cuts from the current 5.25%. The IMF’s suggestions come alongside an upgraded growth forecast for the UK in 2024, though the organisation advised against further tax cuts. Chancellor Jeremy Hunt welcomed the report, highlighting the positive outlook for the UK economy, while opposition parties criticised the government's handling of economic policies.

The IMF's report also noted the UK’s economy is approaching a “soft landing” after a mild recession last year. Inflation is expected to fall near the Bank of England's 2% target by Wednesday, but might rise slightly before settling at the target rate in early 2025. The IMF suggested an initial interest rate cut to 4.75% or 4.5% by the end of this year, with further reductions in 2025 bringing the rate down to 3.5%. This would help balance the risks of cutting rates too soon against the dangers of maintaining high rates.

The IMF also warned that the next government will face challenging decisions regarding taxes and spending. It recommended against additional tax cuts and stressed the need to bolster public finances, which were strained by heavy spending during the Covid pandemic. The Fund suggested generating extra tax revenue from sources such as road usage, VAT, inheritance, and property, and advised pegging state pension increases to inflation alone rather than the current triple lock system. The report also emphasised the importance of maintaining climate policies amidst recent delays.

For more details, visit BBC News.