The International Monetary Fund (IMF) has doubled down on criticism of the chancellor’s mini-budget, days after warning it will fuel rising prices.
The body, which works to stabilise economic growth, admitted tax cuts announced by Kwasi Kwarteng would boost growth in the short-term.
But it said the cuts would “complicate the fight” against soaring prices.
It expects high prices to last longer in the UK with only Slovakia out of the eurozone set to see higher inflation.
Inflation, which measures how the cost of living changes over time, is expected to peak at about 11.3% before the end of the year in the UK, according to the IMF’s latest assessment of the global economy.
In each of the next two years, it expects price rises will average at about 9% – far above the Bank of England’s target of 2%.
Although the UK economy is set to grow the fastest of the major economies included in the G7 group this year, it is projected to grind to a near-halt next year, with it expanding by just 0.3%.
The most recent figures included in the report by the influential financial institution do not fully, however, take into account the UK chancellor’s recent mini-budget.
‘Steady hand’
After Mr Kwarteng unveiled plans for huge tax cuts in the UK, the IMF criticised the plans warning they were likely to increase inequality and add to pressures pushing up prices.
It was an unusually outspoken statement from the IMF, which has a key role in acting as an early economic warning system.
The IMF said it understood the government’s mini-budget aimed to boost growth, but it said that the tax cuts could speed up the pace of price rises, which the UK’s central bank, the Bank of England, is trying to bring down.
Downing Street defended the chancellor’s plans, with the Prime Minister’s official spokesperson saying its policies aimed “to support British people at a time of global high prices” and said the IMF report showed “the global challenges that countries are facing”.
The IMF warned the global economy was facing a downturn with “the worst yet to come” as war in Ukraine helps push prices higher around the globe.
“For many people 2023 will feel like a recession,” it warned.
It said governments and central banks globally had to work together to help people through the turmoil.
The IMF’s Pierre-Olivier Gourinchas told the BBC: “Imagine a car with two drivers at the front and each of them has a steering wheel – and one wants to go left and the other wants to go right.”
He added: “One is the central bank trying to cool off the economy so that price pressures will ease, and the other one wants to spend more to support families… it’s probably not going to work very well.”
In the UK, the chancellor has already said he will bring forward his economic plan where he will spell out how he plans to pay for the tax cuts and provide an independent forecast on the UK economy’s prospects, a move welcomed by the IMF.
However on Tuesday, government borrowing costs remained close to the levels seen at the height of the market turmoil last month despite fresh action from the Bank of England to try and stabilise financial markets.
The IMF has said “the worst is yet to come” in the world economy, saying “for many people 2023 will feel like a recession”.
It made the comments as it downgraded forecast growth around the world as a result of a longer-lasting inflationary shock, arising from Russia’s invasion of Ukraine. Rising global interest rates, and a strong dollar, are adding to these pressures, said the world’s most important international financial institution.
The direct impact of the gas shutdowns in continental Europe means some major economies are hit even more badly – Germany and Italy are now predicted to contract next year. The projections do not fully take into account the chancellor’s mini budget and its aftermath, which will “lift growth somewhat in the near term”, but “complicate the fight against inflation”.
The IMF criticised the UK’s mini-budget in stark terms last month, and also repeated a more general warning about untargeted fiscal support, without mentioning the UK specifically.
The IMF also cautioned that governments would need to protect the least well-off from the impact of higher prices.
Poorer households often spend relatively more than others on food, heating, and fuel, it pointed out – all areas that have seen steep price rises as energy and grain exports have been restricted after the invasion of Ukraine.
And countries that are reliant on Russian gas in Europe are being hit particularly badly. Germany’s economy, for example, is now predicted to contract next year.
Meanwhile, Russia’s economy is expected to contract by 2.3% next year, the biggest fall of all the nations included in the projections.
Speaking on Monday, IMF boss Kristalina Georgieva noted that growth was also being dragged down in China by continued Covid restrictions, while in the US rising interest rates were “starting to bite”.
At the first in-person meetings between the IMF and the World Bank since the pandemic, she said countries could “reduce the pain ahead of us in 2023” by acting together.
She added that the IMF will be pushing for major economies to carry on with their efforts to bring down the cost of living, even if they have a negative impact on economic growth.
If they don’t do enough, she said, “we are in trouble. We cannot afford inflation to be a runaway train.”
Sniffer dogs in Ecuador have found 6.23 tonnes of cocaine hidden in a banana shipment, police say.
The dogs alerted their handlers, who seized 5,630 parcels filled with a white substance that later tested positive for cocaine.
The shipment was destined for Germany, officials said, and would have been worth $224m (£173m) had it reached its destination.
Five people had been arrested following the discovery, according to the prosecutor-general’s office.
Police said they had found the massive cocaine haul during a routine inspection of container stored at Posorja deepwater port south-west of Ecuador’s largest city, Guayaquil.
The cocaine parcels had been hidden beneath crates of bananas destined for export.
One of those arrested in connection to the drug discovery was a representative of the export company responsible for the shipment, whom prosecutors said had been present at the inspection and gave officials the names of the four other suspects.
They include the managers of the banana plantation where the cocaine is suspected to have been added to the fruit shipment, as well as the driver who took the container to the port.
Ecuador has become a major transit country for cocaine produced in neighbouring Peru and Colombia, with transnational criminal gangs using Ecuador’s ports to ship the drug to Europe and the US.
Last year, Ecuadorean security forces seized more than 200 tonnes of drugs, most of it cocaine. Only the US and Colombia seized more drugs in 2023.
Gangs have caused a wave of violent crime in Ecuador, leading President Daniel Noboa to declare a state of emergency and deploy tens of thousands of police officers and soldiers in an effort to combat them.
These security forces have stopped large amounts of cocaine from being shipped to Europe.
In January, officers found the largest stash ever to be seized in Ecuador – 22 tonnes of cocaine – buried in a pig farm.
However, extortion, kidnappings and murders remain high in the Andean country.
Thailand has expanded its visa-free entry scheme to 93 countries and territories as it seeks to revitalize its tourism industry.
Visitors can stay in the South-East Asian nation for up to 60 days under the new scheme that took effect on Monday,
Previously, passport holders from 57 countries were allowed to enter without a visa.
Tourism is a key pillar of the Thai economy, but it has not fully recovered from the pandemic.
Thailand recorded 17.5 million foreign tourists arrivals in the first six months of 2024, up 35% from the same period last year, according to official data. However, the numbers pale in comparison to pre-pandemic levels.
Most of the visitors were from China, Malaysia and India.
Tourism revenue during the same period came in at 858 billion baht ($23.6bn; £18.3bn), less than a quarter of the government’s target.
Millions of tourists flock to Thailand every year for its golden temples, white sand beaches, picturesque mountains and vibrant night life.
The revised visa-free rules are part of a broader plan to boost tourism.
Also on Monday, Thailand introduced a new five-year visa for remote workers, that allows holders to stay for up to 180 days each year.
The country will also allow visiting students, who earn a bachelor’s degree or higher in Thailand, to stay for one year after graduation to find a job or travel.
In June, authorities announced an extension of a waiver on hoteliers’ operating fees for two more years. They also scrapped a proposed tourism fee for visitors flying into the country.
However some stakeholders are concerned that the country’s infrastructure may not be able to keep up with travellers’ demands.
“If more people are coming, it means the country as a whole… has to prepare our resources to welcome them,” said Kantapong Thananuangroj, president of the Thai Tourism Promotion Association.
“If not, [the tourists] may not be impressed with the experience they have in Thailand and we may not get a second chance,” he said.
Chamnan Srisawat, president of the Tourism Council of Thailand, said he foresees a “bottleneck in air traffic as the incoming flights may not increase in time to catch up with the demands of the travellers”.
Some people have also raised safety concerns after rumours that tourists have been kidnapped and sent across the border to work in scam centres in Myanmar or Cambodia.
The prospective new owner of Royal Mail has said he will not walk away from the requirement to deliver letters throughout the UK six days a week, as long as he is running the service.
“As long as I’m alive, I completely exclude this,” Czech billionaire Daniel Kretinsky told the BBC.
Mr Kretinsky has had a £3.6bn offer for Royal Mail accepted by its board.
Shareholders are expected to approve the deal in the coming months, but the government also has a say over whether it goes ahead.
Currently the Universal Service Obligation (USO) requires Royal Mail to deliver letters six days a week throughout the country for the same price. But questions have been raised over whether the service could be reduced in the future.
In an exclusive interview with the BBC, Mr Kretinsky also said he would be willing to share profits with employees, if given the go-ahead to buy the group.
However, he appeared to reject the idea of employees having a stake in Royal Mail, which unions have called for in exchange for their support.
The Royal Mail board agreed a £3.6bn takeover offer from Mr Kretinsky in May for the 500-year-old organisation, which employs more than 150,000 people. Including assumed debts, the offer is worth £5bn.
But because Royal Mail is a nationally important company, the government has the power to scrutinise and potentially block the deal.
As well as keeping the new government on side, Mr Kretinsky also faces the task of convincing postal unions that the proposed deal will benefit employees.
The USO is a potential sticking point for both the government and unions.
Royal Mail is required by law to deliver letters six days a week and parcels five days a week to every address in the UK for a fixed price.
How well this has actually been working in practice is a different matter. Ten years ago, 92% of first class post arrived on time. By the end of last year it was down to 74%, according to the regulator Ofcom.
Last year the regulator fined Royal Mail £5.6m for failing to meet its delivery targets.
Royal Mail has been pushing for this obligation to be watered down. It wants to cut second class letter deliveries to every other weekday, saying this will save £300m, and lead to “fewer than 1,000” voluntary redundancies.
‘Unconditional commitment’
Mr Kretinsky has committed in writing to honouring the USO, but only for five years.
And after that, in theory, the new owners could just walk away from it.
However, Mr Kretinsky told the BBC: “As long as I’m alive, I completely exclude this, and I’m sure that anybody that would be my successor would absolutely understand this.
“I say this as an absolutely clear, unconditional commitment: Royal Mail is going to be the provider of Universal Service Obligation in the UK, I would say forever, as long as the service is going to be needed, and as long as we are going to be around.”
Mr Kretinsky added that the written five-year commitment was “the longest commitment that has ever been offered in a situation like this”.
Another potential stumbling block for the deal, however, is how the company will be structured.
Unions would like to see the company renationalised, but Dave Ward, general secretary of the Communication Workers Union (CWU), told the BBC that would be “difficult in the current political and economic environment”.
Instead, what the CWU is pushing for is “a different model of ownership” – that is, where the employees part-own the business.
To get its support for the takeover, the union wants employees to share ownership of the company, along with other concessions including board representation for workers.
It says profit sharing is “not going to be enough to deliver our support and the support of the workforce”.
If the union doesn’t get what it wants, it won’t rule out industrial action, Mr Ward said. Its members went on strike in 2022 and 2023.
Although Mr Kretinsky said he is “very open” to profit sharing, he is not in favour of shared ownership.
“I don’t think the ownership stake is the right model,” he said. “The logic is: share of profit, yes, [but an] ownership structure creates a lot of complexity.
“For instance, what happens if the employee leaves? He has shares, he is leaving, he is not working for the company, he [still] needs remunerating.”
Mr Kretinsky said he didn’t want to create “some anonymous structure” but instead “remunerate the people who are working for the company, and creating value for the company”.
The union is also concerned about job losses and changes to the terms and conditions of postal workers’ contracts.
Mr Kretinsky has guaranteed no compulsory redundancies or changes in terms and conditions but only until 2025.
“If we are more successful, and we have more parcels to be delivered, we need not less people, but we need more people,” he said. “So really, job cuts are not part of our plan at all.”
He said if the management, union and employees work together, “we will be successful”.
Another concern is the potential break-up of the business.
The profit for Royal Mail’s parent company last year was entirely generated by its German and Canadian logistics and parcels business, GLS. Royal Mail itself made a loss.
Mr Kretinsky has promised not to split off GLS or load the parentcompany with excessive debt, although borrowings will rise if the deal goes through.
But he has a way to go to convince the CWU.
“I can’t think of any other country in the world that would just just hand over its entire postal service to an overseas equity investor,” Mr Ward of the CWU said.
However, Mr Kretinsky said that the postal unions “do understand that we are on the same ship, and that we need this ship to be successful, and that if we are there, we don’t have any real problems to deal with, because the sky is blue, and it’s blue for everybody.”
The union cannot stop this deal but the government can block it under the National Security and Investment Act.
Business Secretary Jonathan Reynolds has said he will scrutinise the assurances and guarantees given and called on Mr Kretinsky to work constructively with the unions.
Mr Kretinsky may say that he and the unions are ultimately on the same ship but, as things stand, they are not on the same page.
Who is Daniel Kretinsky?
Daniel Kretinsky started his career as a lawyer in his hometown of Brno, before moving to Prague.
He then made serious money in Central and Eastern European energy interests.
This includes Eustream, which transports Russian gas via pipelines that run through Ukraine, the Czech Republic and Slovakia.
He then diversified into other investments, including an almost 10% stake in UK supermarket chain Sainsbury’s and a 27% share in Premier League club West Ham United.
The Czech businessman is worth about £6bn, according to reports.