The International Monetary Fund has urged Britain to \u201cstay the course\u201d to cut government borrowing amid growing bond market concerns over a Labour leadership challenge.<\/p>\n
As Keir Starmer battles to cling on to power, the Washington-based fund said it was important to continue reducing the budget deficit \u201cgiven market pressures and elevated implementation risks\u201d.<\/p>\n
In its annual health check on the UK economy, the IMF praised the chancellor, Rachel Reeves<\/a>, for striking \u201ca good balance between deficit reduction and growth-friendly spending\u201d as it upgraded its growth forecasts for 2026.<\/p>\n After sounding the alarm last month<\/a> that Britain would suffer the heaviest economic blow from the Iran war, it increased its forecasts for growth of 0.8% to 1% to reflect the UK\u2019s \u201cstrong prewar momentum\u201d and a robust performance in the first quarter of the year.<\/p>\n Reeves said the upgrade showed the government had the \u201cright economic plan\u201d after official figures released last week<\/a> showed the economy grew at a stronger rate than first anticipated at the start of the year.<\/p>\n In a thinly veiled rebuke to Labour MPs considering toppling Starmer, she said: \u201cPutting our stability at risk when signs of progress are emerging would leave families and businesses worse off.\u201d<\/p>\n The IMF intervention comes amid a sharp rise in government borrowing costs worldwide amid the mounting economic fallout from the Iran war. Investors also fret that a Labour leadership challenge could topple Starmer and lead to a successor increasing borrowing levels.<\/p>\n Investors have highlighted comments by Andy Burnham, the favourite to replace Starmer should he win a byelection to return to parliament, that Britain was too \u201cin hock to the bond markets<\/a>\u201d.<\/p>\n The Greater Manchester mayor has since softened his stance, suggesting at the weekend he was committed to the government\u2019s current fiscal rules and reducing the UK\u2019s debt levels. However, he has also called for a more radical policy stance, including borrowing to fund defence and the nationalisation of leading utilities including water and energy.<\/p>\n Against a volatile backdrop in global markets, the yield \u2013 in effect the interest rate \u2013 on UK government bonds, or gilts, rose on Monday before falling back.<\/p>\n