Labour leader Sir Keir Starmer said the International Monetary Fund (IMF) rebuke to UK economic policy was “very, very serious” and urged Liz Truss’s government to urgently change course.
The Labour leader said the extraordinary intervention showed “just what a mess the government have made of the economy” saying the market turmoil was “self-inflicted wound” caused by chancellor Kwasi Kwarteng’s mini-Budget.
He told LBC that Mr Truss and Mr Kwarteng should urgently set out “how they’re going to fix the problems they’ve made” after the mini-Budget “shambles”.
Sir Keir said his own variable-rate mortgage had seen payments go up by “a few hundred pounds” a month, and said many people were now “worried sick” about their mortgages.
“They have lost control of the economy, and for what? To give tax breaks to people at the top. It’s unacceptable,” the Labour leader added.
In an unprecedented statement on Monday night, the IMF said it was “closely monitoring” developments in the UK and was in touch with the authorities – urging the chancellor to “re-evaluate the tax measures”.
The IMF stated: “Given elevated inflation pressures ... we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy.”
Urging Mr Kwarteng to change course when he comes back on 23 November with a “fiscal plan”, the IMF warned the current plans – including the abolition of the 45p top rate of income tax – are “likely to increase inequality”.
Mr Kwarteng will step up efforts to reassure the City when he meets investment banks on Wednesday after his mini-budget spooked the markets with his package of huge tax cuts and hugely increased borrowing.
Sterling slumped to a record low against the dollar on Monday before recovering slightly. But government borrowing costs continued to climb on Tuesday, as investors continued to dump UK bonds. And banks and building societies pulled hundreds of mortgage deals.
Mr Kwarteng has insisted he was still “confident” that his tax-cutting strategy will deliver economic growth. But Sir Keir said 23 November was “far too long” to wait for a fiscal plan. And the chancellor is also facing demands from Tory MPs to act within days.
One senior Tory backbencher told The Independent that the mini-Budget was “the shortest suicide note in history”. And former Brexit secretary David Davis said Mr Kwarteng must act “pretty bloody soon – and certainly by the party conference”.
Britain could find itself in “the perfect storm” if the Bank of England continues to raise interest rates, said Tory grandee Sir Roger Gale – warning of a potential economic crash ahead.
“If that [interest rate rise] happens, then we could have the perfect storm,” he told Good Morning Britain. “I’m sadly old enough to remember the last financial crash, when ... people were coming into my surgery in tears because they were losing homes and businesses. It was not a pretty sight, and I don’t want to see it happen again.”
The IMF warning came as the Bank of England signalled it was ready to significantly ramp up interest rates to shore up the pound and guard against increased inflation. The Bank’s chief economist Huw Pill said the situation would “require significant monetary policy response”.
Former US Treasury secretary Larry Summers described the situation facing the UK as “very ominous” – adding that it was “the kind of warning that comes much more frequently to emerging markets with new governments than to a country like Britain”.
Right-wing Brexiteer Lord Frost dismissed the intervention, saying: “The IMF has consistently advocated highly conventional economic policies. It is following this approach that has produced years of slow growth and weak productivity,” he told The Telegraph.
Tory MP Sir John Redwood, a prominent Truss supporter, also dismissed the concerns raised by the IMF over the economic plan – saying the international body had been “very wrong”.
Mr Redwood also told Sky News that the Bank of England should be “very cautious” about taking more action on interest rates.
“They have lurched from a monetary policy that was flagrantly too permissive and very inflationary to one which is now very tight. And I think it’s quite tight enough to do the job we need to do which is to get inflation down.”
Sir Keir said Labour would inherit an economy that is in a “complete mess” if it wins the next general election, but told the Today programme he was the person to “steer the country calmly and confidently to a better future”.
Challenged on how Labour’s plan differed from the Tory mini-Budget, Sir Keir said “we would not cut the top rate (of income tax) from 45 per cent to 40 per cent, we would cancel the tax cut for corporation tax … and we’ve got clear fiscal rules.”
Sir Keir also told Times Radio that “does not regret” serving in Jeremy Corbyn’s shadow cabinet but had to “pick the party up off the canvas” after taking the helm.
“There’s a mood here we haven’t seen for years ... we can sense change in the wind,” he said. “After 12 years of failure, it’s time for change. And you can feel that at this party conference. And that is reflected I think in the polls.”
Sir Keir also indicated that he will not be bound by a Labour conference vote in favour of proportional representation (PR) when drawing up Labour’s election manifesto. “The manifesto will be something which I will put together with my team according to the party rules,” he told BBC Radio 5 Live.
Mr Starmer also said MP Rupa Huq’s comments about the “superficially” black chancellor were “racist” and “wrong”.
He told LBC: “She’s been suspended from the whip in the party and that was done very, very quickly.” But Sir Keir would not say whether there was a way back for Ms Huq, saying it would be up to the party.
