The International Monetary Fund has raised its outlook for the UK, predicting growth this year rather than stagnation and no longer handing the economy the worst performance in the G7.
The International Monetary Fund believes Britain’s economy will expand by 0.4 percent this year, an adjustment from the 0.3 percent contraction it predicted in April.
It’s the second consecutive upward revision from the Washington-based fund in as many months, and means the UK won’t be the world’s slowest major economy in 2023. Germany, Europe’s largest economy, is on the way to recession this year, making it worse. performance in the G7.
The International Monetary Fund revised its forecasts on the back of government support measures and falling global energy prices, which helped boost consumer spending, which was stronger than expected this year. The International Monetary Fund said reduced uncertainty about the post-Brexit trading environment in Northern Ireland also helped lift business confidence.
The International Monetary Fund said growth is expected to accelerate by 1 percent next year, with inflation slowing, and then average in the 2 percent range in 2025 and 2026. But officials have warned that inflation will only ease to 2 percent within three years. And they said there was a risk that prices could remain high for a longer period.
The figures come after fund officials completed a two-week mission in the UK to assess the state of the economy ahead of the regular annual assessment report.
“Supported by resilient demand in the context of lower energy prices, the UK economy is expected to avoid recession and maintain positive growth in 2023,” the fund said.
The Chancellor of the Exchequer, Jeremy Hunt, said the IMF forecast was a “significant upgrade” to the UK’s growth outlook, and “take credit for our work to restore stability and tame inflation”.
He added: “She applauds childcare reforms, the Windsor framework and incentives for business investment. If we stick to the plan, the IMF confirms that long-term growth prospects are stronger than in Germany, France and Italy – but the job is far from over.”
The upgrade is in line with other large institutions that have also dropped their forecasts for a recession in 2023, including the Bank of England.
The IMF has been criticized by the government and Tory MPs for persistently underestimating the resilience of the UK economy post-Brexit. The fund had started to contract by 0.6 percent for the year in January, as its outlook was slightly less pessimistic than the World Bank’s, but that of the Office for Budget Responsibility is lower than expected.
IMF officials conducted an internal review of their forecasts for the UK and found that they weren’t much worse than other institutions given the high degree of uncertainty around all growth forecasts in the wake of the war in Ukraine.
The fund praised the government and the bank for moving “decisively to fight inflation,” noting that the central bank was among the first to start raising interest rates in late 2021.
However, inflation has proven to be more consistent than expected this year, with food prices reaching record levels. Tomorrow’s new inflation figures are expected to show the first significant drop in consumer prices, to around 8.4% from 10.1% in March.
The International Monetary Fund said it now expects inflation to fall to the bank’s 2 percent target by mid-2025, six months later than it forecast in April.
The Fund said there were risks that the prices of goods and services and wage growth would keep inflation uncomfortably high this year. “Should such upside risks to inflation occur, headwinds to growth are likely to intensify due to tightening of demand management policies needed to combat inflation,” the IMF said.
