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Rachel Reeves faces “significant challenges” in delivering the UK government’s policy agenda while sticking to her fiscal rules and tax pledges, the IMF has warned, as it renewed its call for the chancellor to “refine” her budget regime.

While ministers’ “bold” reforms to the economy and public services went “in the right direction”, Reeves’ slim fiscal room for manoeuvre and the fallout from Donald Trump’s trade war put them at risk, the fund said on Friday.

“Delivering on this [reform] agenda will require overcoming significant challenges,” the IMF said in its annual report on the British economy, citing “a highly volatile global environment and . . . limited fiscal space”.

Reeves’ headroom against her main fiscal rule was estimated at £9.9bn in March, but she has been hit by weak economic growth and been forced to U-turn on planned cuts to public spending.

Some economists estimate that the chancellor could face a fiscal hole of £20bn or more by the time of the Autumn Budget, and ministers are preparing the ground for a big package of tax rises.

The IMF said Reeves should make “further refinements” to her budget regime, including moving to one Office for Budget Responsibility assessment of her self-imposed fiscal rules each year, at the time of the Autumn Budget, rather than the current twice-yearly review.

The fund also called on Reeves — whose key fiscal rule requires her to meet day-to-day spending with revenues by 2029-30 — to boost her fiscal buffer.

“The first best [option] would be to maintain more headroom under the rules, so that small changes in the outlook do not compromise assessments of rule compliance,” the IMF said.

Responding to the IMF’s Article IV report, Reeves said it confirmed that “the choices we’ve taken have ensured Britain’s economic recovery is under way”.

“Our fiscal rules allow us to confront . . . challenges by investing in Britain’s renewal,” she added.

The Financial Times reported this month that Reeves was considering earlier IMF recommendations to make changes to her fiscal framework, after she was forced to unveil a £14bn plan to fix Britain’s strained public finances in the Spring Statement in March.

Beyond 2030, the final year of the current five-year forecast period, the IMF warned of “tough fiscal choices” in view of ministers’ pledges not to raise taxes on “working people” and an ageing population.

Unless the government reviewed its promise not to raise VAT, income tax or employee national insurance, “further spending prioritisation will be required, to align better the scope of public services with available resources”, the fund said.

It suggested reforming property taxation, ending VAT exemptions and making greater efficiencies, particularly in the health sector — as well as replacing the “triple lock” with a policy of indexing the state pension to the cost of living.

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High-income users could also be charged for access to public services, the fund said, adding that there was scope to expand means-testing of benefits.

The IMF forecast that the UK economy would grow by 1.2 per cent in 2025, and by 1.4 per cent in 2026.

But it warned that “risks to growth are tilted to the downside”, with more saving by households possibly stunting a rebound in consumption and a big rise in commodity prices pushing up inflation.

“In an environment of weak growth, persistent inflationary pressures may create ‘stagflation’ risks,” the IMF noted.