On 17 September 2018 the IMF issued a report following discussions with the UK under Article IV of the IMF’s articles of agreement.

Economic growth in the UK has decreased since the EU referendum in June 2016 owing to uncertainty in relation to the terms of the withdrawal from the EU. Growth was around 1.75% in 2016/17 although employment remained high; and is likely to average around 1.5% in 2018 and 2019. Investment is likely to remain at a lower level while the Brexit uncertainty continues. A Brexit agreement with fewer obstacles to trade than are currently expected could increase confidence and lead to faster growth.

Other economic challenges faced by the UK economy include low productivity growth, large public debt and a wide current account deficit. The UK is however helped by a sound macroeconomic framework and regulatory environment and flexible labour markets. Steady fiscal consolidation is important to bring public debt downwards. This will create buffers that allow the public finances to withstand shocks in the future.

Owing to the aging population public spending on healthcare and pension benefits will rise by around 4 percentage points between 2023 and 2043. This will require some reforms to the pension system such as removal of the so-called “triple lock” in relation to pension increases. Revenue measures will be required as part of the deficit reduction efforts.

Tax reforms could reduce economic distortions and create more fiscal space. These could include scaling back preferential value added tax (VAT) rates to increase tax neutrality; and further alignment of the tax treatment of employees and the self-employed. To increase financial stability the bias of the tax code towards debt could be reduced, for example by adopting a tax allowance in relation to corporate equity. Property taxation should be directed towards tax on property values rather than property transactions.