IMF gives damning verdict on Britain's tax cuts

LONDON — The new economic measures laid out by the U.K. government "will likely increase inequality," the International Monetary Fund said in a rare statement.

While the fiscal package — which included hefty tax cuts for Britain's highest earners — aims to help families and businesses handle the energy shock, the IMF does "not recommend large and untargeted fiscal packages at this juncture," a spokesperson said in a statement late Tuesday.

The so-called "mini-budget" on Friday was not accompanied by a forecast from Britain's independent Office for Budget Responsibility, which typically analyses the impact big financial moves would likely have on the economy.

Markets were strongly affected by the new measures, with U.K. bonds sinking and the British pound plummeting to a record low on Monday.

The IMF also looked ahead to the next full budget announcement, set to be laid out by Finance Minister Kwasi Kwarteng on Nov. 23, saying it gives the U.K. government "an early opportunity … to consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high income earners."

The "almost unprecedented" fiscal injections have "put the U.K. economy into a difficult situation," according to Ian Harnett, co-founder and chief investment strategist at research firm Absolute Strategy.

The move made the Bank of England's position "almost impossible," he said on CNBC's "Squawk Box Europe" on Wednesday.

The Bank of England will likely deliver a "significant policy response" following Kwarteng's fiscal announcement, according to its Chief Economist Huw Pill, who spoke at the Barclays-CEPR International Monetary Policy Forum in London on Tuesday.

While no moves will be made ahead of the bank's next scheduled meeting in November, the recent announcements "will act as a stimulus," Pill said, as reported by Reuters.

Credit ratings agency Moody's, meanwhile, said "large unfunded cuts are credit negative," prompting fears of larger budget deficits and higher interest rates in the U.K.

"A sustained confidence shock arising from market concerns over the credibility of the government's fiscal strategy that resulted in structurally higher funding costs could more permanently weaken the UK's debt affordability," Moody's said, according to Reuters.

The "mini-budget" announced by the new U.K. government on Friday was a "new approach for a new era focused on growth," according to Kwarteng, and included canceling the planned increase in corporation tax from 19% to 25% and scrapping the 45% income tax bracket paid on incomes over £150,000 ($160,000), bringing the top rate down to 40%.

The pound has seen some recovery from its record low of $1.0382 at the start of the week, and sat at around $1.0666 on Wednesday morning.