The International Monetary Fund (IMF) issued a surprise cut to its economic outlook in the UK and said there was a “case” of increased Treasury spending to address the damage from the second wave of coronavirus.

The lender of last resort in the world used its annual review of the UK economy to judge that GDP will drop 10.4% this year.

Just two weeks ago, the latest World Economic Outlook released by the fund estimated an incidence of 9.8%.

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Record UK debt, but time to borrow more?

The report blamed “second wave headwinds” for the adjustment, while also cutting its forecast for 2021 growth resistance from 5.9% to 5.7%.

Its report warned that the risks to its outlook are tilted to the downside with continued unemployment and low productivity growth, which is expected to keep GDP at 3% to 6% below its previous trend of the epidemic in the medium term.

She said the risks would include the absence of a trade deal with the European Union when the Brexit transition period ends.

The review found that there is room for additional government spending to support activity at the local level Covid-19 Restrictions are tightened as soon as the economy emerges from the restrictions imposed on it.

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Chancellor Rishi Sunak is set to unveil his spending plans for next year on November 25

It was completed a month before Chancellor Rishi Sunak was due to set out his spending plans for the next year.

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He is already under pressure to increase his support for employers and their workers amid expectations of a higher unemployment rate once the vacation scheme expires at the end of the month – and replace it with Career support scheme.

International Monetary Fund Director Kristalina Georgieva said: “My main message today is that continued policy support is necessary to confront the epidemic and maintain and revitalize the recovery.

“We welcome the authorities’ pledge to hand them over as long as necessary to reinforce expectations and confidence.

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The head of the International Monetary Fund warns of austerity

“The policy space is there to do this,” she added – repeating a message she made in an exclusive interview with Sky News 12 days ago that she No time to raise taxes Or cut spending to take account of record levels of borrowing in peacetime.

She told reporters that fiscal reform cannot be ignored but should only happen “once the private sector permanently gains momentum.”

Sunak, who participated in the video event to launch the review, said the report has supported his policy package so far and his warnings that future measures should be taken to reduce borrowing.

“Let me explain what the IMF is saying today. It is right to support the economy in the short term, but over time – and in line with other major economies – we must put our public finances back on a sustainable path,” he said.

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