The International Monetary Fund has urged the UK to 'stay the course' on reducing government borrowing, offering support to Chancellor Rachel Reeves amid growing bond market concerns over a potential Labour leadership challenge.
In its annual health check on the UK economy, the Washington-based fund praised Reeves for striking 'a good balance between deficit reduction and growth-friendly spending' and upgraded its growth forecasts for 2026 from 0.8% to 1%, citing the UK's 'strong prewar momentum'.
The IMF intervention comes as Prime Minister Keir Starmer battles to retain power, with investors worried that a successor might increase borrowing. The fund warned that 'domestic uncertainty could also add to the already volatile global environment' and stressed the importance of policy predictability.
Luc Eyraud, the IMF mission chief to the UK, said policymakers face 'limited fiscal space' due to rising debt servicing costs, which already amount to £100bn a year. He cautioned that any new cost-of-living measures, expected from Reeves on Thursday, should be 'targeted, temporary and affordable'.
Reeves welcomed the IMF's upgraded forecasts, stating it showed the government had the 'right economic plan'. In a thinly veiled rebuke to potential challengers, she warned that 'putting our stability at risk when signs of progress are emerging would leave families and businesses worse off'.
