Public investment in new technologies and the energy transition is “badly needed” to drive growth in the UK and prevent the national debt rising to risky levels, the International Monetary Fund (IMF) has warned.
Speaking as Rachel Reeves travelled to Washington to attend her first IMF annual meeting as chancellor, the body identified the UK as an advanced economy at risk of allowing borrowing to rise well in excess of pre-COVID levels.
The IMF’s annual fiscal monitor report, which assesses tax and spending plans across global economies, projects that UK net debt will increase from 91.6% of GDP this year to 96.4% by 2029.
Vitor Gaspar, director of fiscal affairs at the IMF, warned that the UK’s national debt level is “high, rising and risky”, but told Sky News that a combination of relatively high interest rates and low growth made public investment a priority.
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“If I were to give you my concern about the UK… I would put it as follows. The UK is living with interest rates close to US interest rates, but with growth rates that are not close to US levels.
“That leads to a theme that has been amply debated in the UK. Public investment as a percentage of GDP has been trending down and, given the challenges associated with the energy transition, new technologies, technological innovation and much else, public investment is badly needed.”
He warned that the UK’s challenge was not unique in a world where global debt has reached $100trn and rising.
“In most countries, fiscal plans that governments have put in place are insufficient to deliver stable or declining public debt ratios with a high degree of confidence. Additional efforts are necessary. Delaying adjustment is costly and risky. Kicking the can down the road won’t do. The time to act is now.”
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In comments likely to be welcomed by Ms Reeves, who is expected to adjust the government’s debt rules to allow more borrowing in her first budget next week, Mr Gaspar said she should not rule out borrowing to invest.
“Public investment should be protected in the framework of a set of rules and budgetary procedures that foster sound macroeconomic performance. The fact that that debate is very much at the centre of the debate in the UK right now is very much welcome.”
Ms Reeves is expected to make public investment a core plank of a budget in which she will seek to raise close to £40bn via tax increases and spending cuts, while also trying to kick-start growth.
Total public and private investment levels in the UK are the lowest in the G7 and have been for 24 of the last 30 years, according to thinktank the IPPR.
She will gather with fellow finance ministers from more than 190 countries in Washington on Thursday, a gathering also attended by Bank of England governor Andrew Bailey.