The International Monetary Fund (IMF) has urged the UK Government to reconsider its plans for tax cuts over fears it could drive up inequality and put more pressure on prices.
It comes after the Mini-Budget, delivered by new Chancellor Kwasi Kwarteng, spooked markets this week - with the pound plunging to an all-time low against the US dollar.
Mortgage lenders also started pulling deals, over fears for the economy and public borrowing - as analysts predict interest rates could climb to 6% next year.
In a statement issued yesterday, the IMF has called on the Government to "re-evaluate" its tax measures - "especially those that benefit high income earners".
It further warned how the fiscal plans unveiled in the Mini-Budget risk undermining the measures already in place by the Bank of England - referring to raising interest rates to lower inflation.
Has your mortgage already gone up because of rising interest rates? Let us know: mirror.money.saving@mirror.co.uk
The pound dropped to $1.03 in early trading on Monday morning - its lowest level against the US dollar since decimalisation in 1971.
Sterling is currently trading at $1.0679 at the time of writing.
"We are closely monitoring recent economic developments in the UK and are engaged with the authorities," the IMF spokesperson told Reuters.
"Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture.
"It is important that fiscal policy does not work at cross purposes to monetary policy."
The IMF then added: "Furthermore, the nature of the UK measures will likely increase inequality."
The main focus of the IMF is to monitor and work with nations to stabilise the global economy.
Its statement echoes concerns from the Bank of England, who this week said it won't hesitate to change interest rates “by as much as needed” to get inflation under control.
Sir Keir Starmer said the rare attack from the IMF is “very serious“ and “shows just what a mess the government has made of the economy”.
Speaking to LBC at the Labour party conference, he said: “This is self-inflicted by the Government.
“People are very, very worried this morning, their mortgages are going up. The Government has got to respond to this.”
The warning comes after the new Chancellor Mr Kwarteng delivered £45billion worth of tax cuts - the biggest of its kind in 50 years - alongside massively increased borrowing.
Some of measures announced include abolishing the higher rate 45% tax bracket for the most wealthy, along with reversing the 1.25 percentage point National Insurance hike.
Mr Kwarteng is expected to set out medium-term debt-cutting plans on November 23.
This will also include forecasts from the independent Office for Budget Responsibility of the full scale of Government borrowing.
A Treasury spokesperson said: “Our energy price guarantee saves households £1,000 on average and we’re halving business energy bills.
“We are focused on growing the economy to raise living standards for everyone and the Chancellor has announced he will publish his medium-term fiscal plan on November 23, which will set out further details on the government’s fiscal rules.”
