The head of the International Monetary Fund has delivered a blunt condemnation of the UK government’s mini-budget – stressing that government and Bank of England policies should not work against each other.
Kristalina Georgieva was speaking at a news conference in Washington after the government’s mini-budget sparked chaos in markets when it was announced last month.
Interviewed by US correspondent Mark Stone though she had any messages for Prime Minister Liz Truss and the UK, Ms Georgieva said: “Fiscal policy should not undermine monetary policy.
“Because if it does, then the task of monetary policy only becomes more difficult and this translates into the need for an even bigger increase in rates and a tightening of financial conditions.
“Don’t prolong the pain. Make sure actions are consistent and consistent.”
She added that it’s “ok to be guided by the evidence, so if the evidence is that there needs to be recalibration, it’s right for governments to do it.”
Fiscal policy is how the government spends money, while monetary policy is the control of interest rates exercised by the Bank of England.
Ms Georgieva’s remarks come after the IMF’s chief economist told Sky News the Chancellor’s mini-budget is ‘making things right’ for the Bank of England as it struggles to bring inflation down.
Olivier Gourinchas also said tax cuts announced by Chancellor Kwasi Kwarteng late last month threatened to cause ‘problems’ for the UK economy, as they did when the Bank tried to raise interest rates interest.
The announcement of Mr Kwarteng’s mini budget, which included billions of pounds in unfunded tax cuts designed to encourage growth, led to a contradiction in policy between the Bank and the government.
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While the government is trying to encourage growth, the Bank is trying to suppress it, by raising interest rates, to bring inflation back to its 2% target.
The idea behind the interest rate hikes introduced by central banks around the world, including the Bank of England, is that raising interest rates will bring down inflation.
Higher interest rates make paying down debt more expensive, but the Bank believes this will lead to a shorter economic downturn than failing to act to stem inflation.
Ms Georgieva also praised British institutions at the press conference in Washington on Thursday.
She said: “You have a country with strong institutions and strong traditions, transparent and evidence-based policy-making.
“And it’s the foundation of these institutions, of course, the independent Bank of England, the Office for Budgetary Responsibility, the engagement of parliament, the public, you of the press that gives the UK reputation, of a country with a strength in economic policy-making.
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