An IMF assessment of the UK economy published on 14 February 2018 concludes that the UK economy must become more efficient.  The UK economy is being held back by uncertainty following the decision to exit the EU. The weaker pound has caused higher prices and limited spending increases while business investment is being held back by uncertainty. On the positive side a cheaper pound and higher growth of the UK’s trading partners have led to more demand for UK exports. Economic growth has been at a slower pace than in recent years and is projected to be a little under 0.4% per quarter in 2018.

The changes to regulations, trade and firms’ ability to attract workers resulting from Brexit will affect all sectors of the UK economy. The financial sector could lose out if UK-based financial firms lose the right to sell services to EU clients and the IMF projects that a reduction of up to 40% in net exports of financial services to the EU could result from leaving the EU single market.

For living standards to keep improving across all groups in society the UK must produce more efficiently. Although employment has been increasing productivity growth measured as the increase in average output per worker has almost stalled. Future economic growth depends on increasing the amount that each employee can produce.

The IMF assessment suggests that the UK should build more homes; improve the quality of the infrastructure; reform the education system and invest in research and development. The public debt is high by international standards at 87% of GDP and the need for higher public spending due to an aging population will strain public finances.

The UK therefore needs to take measures to improve public finances. These measures should include the reduction of the guaranteed annual increase in state pensions, with targeted help for those who need it.

Tax reforms are also required. The IMF suggests that these reforms should include scaling back the preferential value added tax rates. The UK currently categorizes numerous products as exempt, zero-rated or taxable at the lower rate.

The assessment also suggests that the UK should also harmonize the tax treatment of the self-employed and those employed as regular employees. The self-employed currently pay lower social security contributions than employees.