IMF chief berates UK officials over fiscal and monetary policy coherence

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WASHINGTON — International Monetary Fund Managing Director Kristalina Georgieva chastised Britain on Thursday over its planned tax cuts, telling her finance minister and central bank chief that their policies should not be contradictory.

His comments at the IMF and World Bank’s annual meetings in Washington highlighted concerns over financial market turmoil caused by Britain’s « mini-budget » of spending increases and tax cuts that threatened to overshadow larger economic challenges, such as the fight against inflation and the impact of the war in Ukraine.

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Georgieva told a press conference that she had discussed with UK Finance Minister Kwasi Kwarteng and Bank of England Governor Andrew Bailey the need for « policy coherence and ‘clear communication… so that in this nervous environment, there would be no reason for more nervousness’.

“Our message to everyone, not just the UK, at this time fiscal policy must not undermine monetary policy because if it does the task of monetary policy only becomes harder and that translates into the need to raise rates even more and tighten financial conditions, » Georgieva said. « So don’t prolong the pain.

The IMF chief said any policy recalibration should be evidence-based. And right now, the evidence shows that governments need to keep fighting inflation, even if it increases the risk of a global recession.

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Kwarteng kept a low profile at the first in-person meetings of the IMF and World Bank in more than three years, and was not present at a meeting of G20 finance ministers and central bank governors on Thursday, according to media reports. British.

In a BBC television interview on the sidelines of the meetings, Kwarteng said he was focused on delivering the mini-budget and economic growth after media reports the UK government was considering canceling parts of the plan.

“Our position has not changed. I will present the medium-term budget plan on October 31, as I said earlier in the week, and there will be more details then,” Kwarteng told the BBC.

Asked repeatedly about reports of a possible reversal of his plan to freeze the corporate tax rate – rather than letting it rise, as his predecessor Rishi Sunak had planned – Kwarteng repeated that he was focused on his growth plan and added that he should remain Minister of Finance.

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Georgieva said the probability of a global recession was now around 25%, adding that the IMF was still urging central banks to continue tightening monetary policy to fight inflation. She said it would reduce inflation despite the ongoing war in Ukraine, as it would cool demand, as well as high energy and food prices.

But Georgieva said the Bank of England’s decision to intervene in sovereign debt markets « was appropriate » to safeguard financial stability and does not interfere with the bank’s main monetary policy objectives, namely know price stability. (Additional reporting by Leika Kihara and William Schomberg; Editing by Chizu Nomiyama and Paul Simao)