The International Monetary Fund has urged Liz Truss to reverse the decision to abolish the top rate of income tax, in a highly unusual attack on the economic policy of a G7 country.
The world’s lender of last resort openly criticised the UK Government over its plan for tax cuts, warning that the measures are likely to fuel the cost-of-living crisis.
Chancellor Kwasi Kwarteng unveiled the country's biggest tax package in 50 years on Friday. The £45billion cut will be funded by government borrowing.
The government says the measures will kickstart economic growth, but the IMF has heaped pressure on Mr Kwarteng to use his fiscal plan in November to change course.
Outspoken
The IMF works to stabilise the global economy, and one of its roles is to act as an early economic warning system.
The BBC said that in an unusually outspoken statement, the IMF said the proposal would be likely to increase inequality and add to pressures pushing up prices.
It said it understood the package aimed to boost growth via tax cuts, but it warned that the measures could speed up the pace of price rises, which the UK's central bank is trying to bring down.
"Furthermore, the nature of the UK measures will likely increase inequality," it said.
Rating warning
Meanwhile, The rating agency Moody's last night joined the IMF in warning over the Chancellor's plans, raising the spectre of a downgrade to the UK's outlook and branding the mini-Budget "credit negative".
Moody's told The Telegraph it was now not expecting economic growth to return to its potential until 2026, and cut its forecasts for GDP growth next year. It said the unfunded tax cuts would lead to "structurally higher deficits".
Housing market fears
Mortgage providers have begun raising interest rates to levels not seen since the financial crisis as economists warned that growing borrowing costs would trigger a steep fall in house prices.
HSBC and Santander suspended new mortgage deals yesterday. Nationwide became the first big lender to increase fixed-rate deals, with its two-year rate rising to 5.59%. Three months ago it offered a comparable mortgage at 2.54%
Andrew Garthwaite, a director at Credit Suisse, said the combination of recession, higher interest rates and rising inflation would combine to deal a serious blow to the property market. “On current swap rates, the average mortgage will be 6.3%,” he said. “House prices could easily fall 10% to 15%.”
FTSE 100
Following the IMF's statement, The FTSE 100 started today down 135 and 6,849, following yesterday's 36-point drop.
Companies reporting today
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