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The UK chancellor could be left at risk of breaking her fiscal rules by unexpected economic shocks and faces ‘significant challenges’ in delivering the government’s agenda, the International Monetary Fund, IMF, has warned. The IMF said the UK’s ‘limited’ so-called headroom on its public finances gave little room to manoeuvre and called on Rachel Reeves to consider some tax changes or spending cuts. In its annual report on the UK economy, the IMF said: ‘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 materialise.’ The IMF praised the government’s fiscal plans, saying they ‘strike a good balance between supporting growth and safeguarding fiscal sustainability’. It added that the pro-growth agenda ‘covers the right areas to lift productivity’. But the IMF cautioned that ‘delivering on this agenda will require overcoming significant challenges’ amid the fallout from US President Donald Trump’s trade war. ‘Shockwaves from trade policies and rapid geopolitical developments are affecting global growth and creating heightened levels of volatility in financial markets,’ it said. Added to this, it said, ‘fiscal space is limited and constrained by an elevated interest burden and increasing demands on public resources, including defence and aging-related spending’. Reeves said the report ‘confirms that the choices we’ve taken have ensured Britain’s economic recovery is under way, and that our plans will tackle the deep-rooted economic challenges that we inherited in the face of global headwinds’. ‘Our fiscal rules allow us to confront those challenges by investing in Britain’s renewal,’ she said. The Washington-based IMF also recommended cutting the number of assessments of whether the government is on track with its fiscal rules by the Office for Budget Responsibility, OBR, to once a year ahead of the autumn budget. This could ‘reduce pressure for overly frequent changes to fiscal policy’, it said. By Holly Williams, PA Business Editor Press Association: Finance source: PA Copyright 2025 Alliance News Ltd. All Rights Reserved.
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