(Bloomberg) -- The International Monetary Fund said the UK needs to boost public investment, as the institution gave tacit approval of proposals Chancellor of the Exchequer Rachel Reeves is debating to change the country’s fiscal rules.
An increase in such expenditure is “badly needed” in the UK, and should be protected within Britain’s budgetary procedures, the IMF’s fiscal policy chief, Vitor Gaspar, said on Wednesday in a statement. He said it was “very welcome” that the UK government is debating changing the rules to allow for more investment.
Reeves is due to deliver Labour’s first UK budget in 14 years on Oct. 30, and has been considering tweaking her fiscal guidelines to allow for more public investment by using a different measure of debt. That’s led to concerns over a market backlash to more borrowing, so the apparent endorsement by the IMF will be a relief for the chancellor.
The intervention comes two years after the IMF’s unusually outspoken verdict on the then Tory Prime Minister Liz Truss’s economic plans helped sink her credibility.
The Washington-based institution group piled pressure on Truss and her chancellor, Kwasi Kwarteng, at the time by urging them to reconsider a £45 billion ($58 billion) program of unfunded tax cuts that had already roiled the markets. Truss sacked Kwarteng when he returned from the IMF meetings the following month, but was out the door herself shortly later, after just 7 weeks in office.
“The UK is living with interest rates that are close to US interest rates but it’s also living with growth rates that are not close to US growth rates and that leads to a theme that has been amply debated in the UK, which is the importance of public investment,” Gaspar said. “Given challenges associated with the energy transition, new technologies, technological innovation and much else, public investment is badly needed.”
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