UK has room for three interest rate cuts this year, IMF says

Mr Hunt added that the IMF had “forecast we will grow faster than any other large European country over the next six years – so it is time to shake off some of the unjustified pessimism about our prospects”.

In the IMF’s preliminary health check of the economy, it upgraded the growth forecast marginally for this year from 0.5% to 0.7%, and expects growth of 1.5% in 2025.

While UK inflation, the rate at which prices increase, is expected to fall close to the Bank of England’s target of 2% on Wednesday, it is then set to rise a little over the course of the rest of the year, before “durably” settling at the target rate in early 2025, the Fund said.

When it came to interest rate cuts, the IMF noted the Bank had to balance the risk of not cutting too quickly before inflation is under control, against that of keeping rates too high, which could hit growth.

It recommends cutting the current Bank rate of 5.25% to either 4.75% or 4.5% by the end of the year.

The IMF said it would not have recommended the recent cuts to National Insurance “given their significant cost”.

The Fund assumes that the government will have to spend significantly more on public services over the next five years, meaning that its self-imposed target for falling debt as a share of national income will not be met. This leads to a gap of about 1% of UK gross domestic product (GDP), or £30bn a year.