LONDON (Reuters) – Higher spending planned by British Prime Minister Boris Johnson will help offset the drag on the economy from Brexit but his government must keep on bringing down public debt levels, the International Monetary Fund said.
“The extra public spending envisaged by the government should mitigate the cost of Brexit for the economy,” the IMF said in its World Economic Outlook report published on Tuesday.
“But continued efforts to bring down the debt ratio remain important to build buffers against future shocks.”
Finance minister Sajid Javid announced in September the biggest increase in day-to-expenditure in 15 years in a one-year spending plan that was widely seen as paving the way for Johnson’s push for an early election.
Javid is planning to announce new fiscal rules when he delivers a full budget statement on Nov. 6.
Under Britain’s existing budget rules, the government aims to bring down public debt as a share of the economy – which has more than doubled since the global financial crisis to stand at around 80% – each year.
The IMF said the economic policy choices facing Britain would depend on the terms of Brexit.
“In case of a disorderly Brexit accompanied by a sharp rise in barriers to goods and services trade with the European Union, the policy response will need to take into account the extent of the adverse financial market reaction and its likely impact on macroeconomic stability,” it said.
(Writing by William Schomberg, editing by Andy Bruce)