IMF Praises UK as Only G7 Nation Cutting Deficits — 4% of GDP

The UK is the only G7 country with a serious plan to cut annual borrowing, worth nearly 4% of the size of its economy over the next few years, according to the IMF's twice-yearly assessment. Top IMF officials praised Britain's fiscal plans on three separate occasions within 24 hours at the fund's annual meeting in Thailand.

IMF managing director Kristalina Georgieva put it plainly: "The UK is actually one country where action to reduce debt and deficit has been taken decisively and we see the UK in that sense enjoying a bit of a better growth prospect."

Her comments followed those of the IMF's chief economist Silvana Tenreyro, who told the BBC's Faisal Islam that UK borrowing reductions "stand out".

How does the UK compare with the rest of the G7?

The contrast is stark. The US, Germany and Japan are increasing borrowing. Canada and Italy are holding it flat. Only the UK among the G7 — which also includes France — has a serious consolidation plan for the years ahead, worth close to 4% of GDP.

That makes Britain the IMF's model pupil, topping the G7 table on deficit reduction.

The shift matters. For the past half decade, the UK has sat on the bond market's naughty step, often carrying the highest borrowing rates in the G7 since the Liz Truss mini-budget, as political and economic crises hit successive governments.

What does this change for the Budget?

For Chancellor John Healey, the praise comes with strings attached. To keep the debt-reduction plans on track, he is likely to have limited room for extra spending when he delivers the Budget in a fortnight's time.

He will want to pair that constraint with limited tax rises. There could also be a modest cut in the margin for error around meeting debt rules — the so-called headroom. If so, that will likely serve as a cushion against an expected rise in energy prices driven by the ongoing Middle East conflict, and its knock-on effect on the cost of living.

That points to disappointment ahead. Many public services expecting cash injections to account for rising inflation — as suggested this week by the Institute for Fiscal Studies — are set to be let down. Public sector pay negotiations will be tough.

It won't be "austerity", but the chancellor is likely to lean into the IMF's framing of a government with austere plans relative to other advanced countries.

What's the payoff?

The immediate prize is avoiding the direct gaze of the bond markets, whose full glare now falls on others — France, in particular. The bigger prize could be lower relative borrowing costs for government and households.

The IMF's message at the meeting was blunt: "Get your fiscal health in order." The fund is worried about the debts of the world's biggest economies and, acting as watchdog, is hunting for financial vulnerabilities. Meanwhile, finance ministers of former crisis countries are boasting about how little their borrowing costs have risen compared with giants like the US.

As Islam notes, forecasts mean nothing without the underpinning of solid plans. Those plans — in the form of Healey's Budget — will be here for everyone to judge soon enough.