The International Monetary Fund (IMF) has warned that the United Kingdom, under its new Labour government, faces tough decisions due to high public debt.
In its annual economic review, the IMF stressed the need to balance public spending while stabilising debt, which is nearing 100 per cent of GDP.
This challenge arises as the country requires significant investment in sectors like healthcare, which suffers from chronic underfunding and an ageing population.
Additionally, the IMF called for ambitious reforms to boost growth.
For consumers, this means potential changes in tax policies.
The IMF suggested that the government might need to increase tax revenues by raising carbon, inheritance, and property taxes, and broadening the VAT base.
While these measures aim to control debt, they could impact household budgets and consumer spending.
The IMF also noted a soft landing for the economy after a mild recession last year, predicting 0.7 per cent growth in 2024, with a rise to 1.5 per cent in 2025 and 1.7 per cent in 2026.
Inflation is expected to hit 2.5 per cent temporarily by year-end but is currently on target.
Despite challenges like weak productivity and an ageing population, increased immigration has helped mitigate negative effects, with Brexit impacts gradually fading.
The Labour Party, led by Keir Starmer, won a landslide victory, ending 14 years of conservative rule.
New finance minister Rachel Reeves aims to stimulate growth, focusing on infrastructure projects, including onshore wind power and housing.
Consumers can expect a period of adjustment with potential tax hikes and a focus on long-term economic stability and growth, which could improve public services and infrastructure in the future.