As Chancellor Rachel Reeves heads to her first IMF meeting, the international body warns that high interest rates and low growth necessitate immediate action on public investment

In a stark warning to the UK government, the International Monetary Fund (IMF) has highlighted the urgent need for increased public investment in new technologies and energy transition to prevent the national debt from escalating to precarious levels. The call comes as Chancellor Rachel Reeves embarks on her first International Monetary Fund annual meeting in Washington, D.C.

According to the IMF’s latest fiscal monitor report, the UK is classified as an advanced economy at significant risk of allowing its borrowing to surge well beyond pre-pandemic levels. The report projects that net debt will climb from 91.6% of GDP in 2024 to 96.4% by 2029, raising alarm bells about the long-term sustainability of the nation’s finances.

Vitor Gaspar, the IMF’s director of fiscal affairs, expressed grave concerns regarding the UK’s economic outlook, stating that the combination of relatively high interest rates and sluggish growth makes public investment essential. “If I were to summarise my concerns about the UK, I would note that while interest rates are nearing those of the US, our growth rates fall significantly short,” Gaspar explained.

The IMF report underscores a troubling trend: public investment as a percentage of GDP has been on a downward trajectory. This decline poses challenges as the UK faces pressing issues such as the transition to cleaner energy and the need for technological innovation. “Given the challenges associated with the energy transition and technological advancements, public investment is badly needed,” Gaspar emphasised.

Gaspar’s comments reflect a broader global context, with the world’s total debt soaring to an astonishing $100 trillion. He cautioned that many nations, including the UK, are grappling with fiscal plans that fail to ensure stable or declining public debt ratios with confidence. “Delaying necessary adjustments is both costly and risky. Kicking the can down the road is not a viable option; the time to act is now,” he asserted.

Reeves, who has indicated that she may revise the government’s debt rules to permit increased borrowing, will be faced with significant pressure to respond to the IMF’s recommendations. The chancellor’s commitment to addressing public investment issues is seen as crucial not only for economic stability but also for fostering growth in key sectors that can drive the UK’s recovery.

As the IMF meeting unfolds, the dialogue will likely centre on the balance between fiscal responsibility and the pressing need for investment in future technologies and sustainable energy. With the UK economy still reeling from the effects of the COVID-19 pandemic, the government must navigate the delicate task of managing its national debt while encouraging the innovation necessary to thrive in a rapidly changing global landscape.

Public sentiment is increasingly aligned with the notion that proactive measures must be taken to secure the nation’s financial future. Advocacy groups and economic experts alike stress that investing in public infrastructure and new technologies will yield long-term benefits, ultimately leading to improved growth prospects and enhanced public services.

The IMF’s clarion call for public investment serves as a timely reminder of the challenges that lie ahead. With the stakes higher than ever, the UK must grapple with the realities of its fiscal situation, making bold decisions to ensure a stable and prosperous economic future