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Investing.com -- The International Monetary Fund (IMF) on Friday warned that Britain’s Finance Minister Rachel Reeves create more fiscal leeway through tax or spending measures.
In its final annual report on the U.K. economy, the IMF acknowledged that Reeves’ changes to deficit reduction plans had improved the credibility and effectiveness of fiscal policy.
However, the organization highlighted significant concerns about the sustainability of the current approach.
"Risks to this strategy must be carefully managed. In an uncertain global environment and with limited fiscal headroom, fiscal rules could easily be breached if growth disappoints or interest rate shocks materialize," the IMF stated in the report.
Responding to the report, Reeves defended her economic strategy in a statement, saying the IMF had endorsed her choices for Britain’s economic recovery.
She added that her plans would "tackle the deep-rooted economic challenges that we inherited in the face of global headwinds."
The Fund also suggested that maintaining more headroom under fiscal rules would be the best option to prevent small economic outlook changes from compromising rule compliance.
This approach would reduce the risk of frequent adjustments to tax and spending policies.