LONDON: In a significant U-turn, the International Monetary Fund (IMF) revised its forecast for the UK economy on Tuesday, predicting growth for this year, just one month after projecting a contraction.
The IMF now expects Britain’s economy to expand by 0.4 percent, citing factors such as weaker energy prices in its latest outlook document.
This revision comes as a departure from the institution’s previous forecast in April, which anticipated a 0.3-percent contraction. However, the IMF noted a “significant” slowdown compared to 2022 when the economy grew by 4.1 percent despite challenges posed by high inflation and energy bills due to the Ukraine war.
The IMF’s statement on Tuesday expressed optimism that the UK economy would avoid a recession and maintain positive growth in 2023, fueled by resilient demand in the face of declining energy prices.
However, it acknowledged a notable slowdown compared to the previous year and persistently high inflation resulting from the severe terms-of-trade shock caused by Russia’s war in Ukraine and the lingering effects of the pandemic on labor supply.
IMF cautions subdue growth outlook for this year
The IMF also cautioned that the growth outlook for this year remains subdued. Nonetheless, the upgrade for 2023 reflected higher-than-expected resilience in both demand and supply, improved confidence in reduced post-Brexit uncertainty, and lower energy costs.
The UK government, particularly the Conservative party, welcomed the IMF’s revised forecast. Finance Minister Jeremy Hunt considered it a “big upgrade” and credited the government’s actions to restore stability and control inflation.
However, he emphasized the need to stay committed to the plan, noting that while the IMF confirms stronger long-term growth prospects compared to Germany, France, and Italy, there is still work to be done.
According to the IMF, GDP is expected to grow by 1.0 percent in 2024, consistent with its previous guidance. This new outlook aligns with the Bank of England’s forecast earlier this month, which predicted that the UK economy would avoid a recession this year despite the country’s annual inflation remaining above 10 percent.
