IMF chief Kristalina Giorgieva commended Rishi Sunak's interventions to support livelihoods but warned not to think about reducing public spending or cutting the deficit until the crisis subsides.
Citing fears about the impact of a second wave of Covid-19, the IMF downgraded its outlook for the UK economy, forecasting a 10.4 per cent plunge in GDP this year, worse than the 9.8 per cent it had previously predicted.
It now forecasts growth of 5.7 per cent next year, leaving the UK's output well below pre-crisis levels into 2022.
The Washington-based organisation, which has for decades been a global voice for deregulation, privatisation and lower government spending, said the pandemic had "taken a significant human toll" on the UK and more public investment would be needed in order to rebuild.
In its report published on Thursday, the IMF said: "Continued policy support is essential to see the economy through the pandemic and the transition to the post-Brexit trade regime.
"Fiscal policy should continue to accommodate the costs of programs now in place to protect workers and firms directly affected by the pandemic.
âInvigorating growth as the pandemic subsides will require an additional fiscal policy push, and this should take advantage of opportunities to 'build forward better'.â
Ms Georgieva praised the UKâs fiscal response to the pandemic as âone of the best examples of coordinated action that we have seen globallyâ and said the IMF welcomed "continuing efforts the government has made to refine its support measures, including adaptations to the Jobs Support Scheme announced last week".
Mr Sunak announced more generous measures last week, amid growing warnings that the Job Support Scheme would not be enough to prevent mass job losses.
Business groups and unions welcomed the move but said thousands of jobs had been lost due to the delay.
At the Conservative Party conference earlier this month the chancellor promised to âalways balance the booksâ, prompting fears that he may be seeking to turn off the spending taps while the economy is still being ravaged by the pandemic.
âWe have a sacred responsibility to future generations to leave the public finances strong, and through careful management of our economy, this Conservative government will always balance the books," Mr Sunak said.
âIf instead we argue there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point in us?â