The pound is overvalued which is leaving the economy in an unbalanced state, says the International Monetary Fund (IMF).
The IMF said that a lack of competition and "limited export diversification" means that the value of the pound is overvalued by up to 10%, which is thwarting an economic rebalance as the UK attempts to halt its reliance on imports and spending.
It says that the UK needs to raise its export performance and ease its restrictions on skilled immigrants to equal out the economy, as "sustaining strong growth will depend on a recovery in productivity growth and further demand rebalancing".
"Relaxing immigration requirements in areas with labour shortages, such as manufacturing, could provide a boost to productivity and facilitate the rebalancing of the UK economy," read the report from the IMF.
It goes on to say that the UK should look to invest in the future by "loosening the visa regime for foreign students".
The IMF says that if the UK does not increase its productivity, the Bank of England may have to hike interest rates in due course to give the economy room for manoeuvre.
The report highlights the housing market as a particular threat to the UK's economy.
Office for National Statistics (ONS) data shows the average UK house price rising by 10.5% over the year in May 2014 to £262,000.
And the IMF says that this needs to be addressed from the highest levels "A lasting solution to house price pressures requires measures to address insufficient supply.
"Significant planning reforms have been undertaken, but political consensus is needed to make further progress in this area."