On 29 October 2020 the IMF published a report on the UK economy following the conclusion of the 2020 Article IV consultations.

In the UK the pandemic has been more severe than in most other European countries, impacting an economy already that already faced problems from Brexit and longer-term challenges. A coordinated package of fiscal, monetary, and financial sector measures has supported households, kept unemployment down and reduced the number of bankruptcies.

The IMF expects a muted recovery with some downside risks. The summer 2020 rebound in economic activity is threatened by a second wave of Covid-19 infections, Brexit-related uncertainty and rising unemployment. The UK economy is likely to contract by 10.4% in 2020 and to recover partially in 2021, with growth at 5.7%.

Fiscal policy should continue to accommodate the ongoing costs of pandemic health, job, and small business support schemes. An additional effort will be needed to revive the economy when the pandemic subsides. Planned expansion of public investment could help raise productivity, address regional inequalities and reduce carbon emissions. The IMF noted the measures taken to enhance project selection and ensure compliance with spending processes.

At the right time the fiscal consolidation should commence but should be gradual. The pension triple lock should be reconsidered but there are limits to how far expenditure can be reduced given the decreases already made over the past decade. Some adjustment of tax bases and the mainline tax rates is necessary.

Measures must be taken to strengthen the social safety net and to invest in human capital. Changes have been introduced since March 2020 to temporarily raise universal credit and other benefits, together with expanded active labour market policies (ALMPs), and further enhancements to these measures should be considered.

The insolvency legislation has been adjusted to permit more flexible restructurings, although significant Court involvement is still required. Additional efforts are needed for a more streamlined approach for arrangements out of Court.

The UK and EU authorities should increase efforts to reach a post-Brexit trade agreement and to complete preparations for implementation. If there is no agreement a stronger policy response will be required. In any case the government will need to carry out its plans for investment in border infrastructure, staff and technology, as well as measures relating to the customs intermediary sector. Stronger communications and direct assistance for SMEs will also be required.