RACHEL Reeves is under pressure to raise taxes or cut spending after the world’s top financial watchdog warned Britain has run out of room to handle another major crisis.
The International Monetary Fund downgraded UK growth and said high debt, rising interest costs and stubborn are leaving public finances dangerously stretched.
In a damning assessment, the IMF said: “Much of the available policy space has already been exhausted in many countries, limiting how much support policymakers can give economies in case of new negative shocks or a pronounced downturn.”
The warning lands as the Chancellor heads to for three days of meetings with global finance chiefs at the IMF, G7 and G20.
She will also meet US Treasury Secretary Scott Bessent as Britain pushes for a trade deal to soften the blow of Donald Trump’s 10 per cent tariffs on imports — plus a separate 25 per cent levy on car exports.
Ahead of her trip, Ms Reeves said: ” “The world has changed, and we are in a new era of global trade. I am in no doubt that the imposition of tariffs will have a profound impact on the global economy and the economy at home.
“This changing world is unsettling for families who are worried about the cost of living and businesses concerned about what tariffs will mean for them.
“But our task as a government is not to be knocked off course or to take rash action which risks undermining people's security.
But at home, the IMF now expects the to grow by just 1.1 per cent this year and — among the slowest rates in the G7 and below the global average.
The Fund blamed the downgrade on a mix of rising costs and weak consumer confidence at home, as well as political and economic turbulence abroad.
However, that figure still puts Britain ahead of , and – something the Chancellor has been quick to highlight.
Responding to the report, Ms Reeves said: “This forecast shows that the UK is still the fastest growing European G7 country.
“The IMF have recognised that this government is delivering reform which will drive up long-term growth in the UK, through our Plan for Change.
“The report also clearly shows that the world has changed, which is why I will be in Washington this week defending British interests and making the case for free and fair trade.”;
But the report also warned the UK, like others, is facing rising borrowing costs — with more of the raised from taxes now being spent on interest.
It also flagged that real interest rates on long-term government debt have jumped in the UK — making it more expensive for the government to borrow.
At the same time, the IMF said the effort needed to get debt under control — known as “fiscal adjustment”; — is now at a “historic high”; across advanced economies.
This means governments like Britain’s may soon have to make difficult choices — either raising taxes, cutting spending, or finding a way to grow the economy faster.
But with the UK still grappling with low productivity and wages that aren’t keeping up for most workers, the IMF suggests that won’t be easy.
And while inflation is starting to ease, it’s still expected to stay above the ‘s target of two percent in countries like the UK — meaning the cost of living squeeze is far from over for working households.
