IMF dramatically upgrades outlook for UK economic system – however says extra value of residing ache to return

Britain is not anticipated to undergo a recession this yr, nor will it have the weakest financial development within the group of seven main industrialised economies, the International Monetary Fund (IMF) mentioned right this moment.

Unveiling a dramatic improve to its outlook for Britain, the Fund, which beforehand predicted Britain would face the worst 2023 of any G7 nation, mentioned that in actual fact the UK would develop by 0.4% this yr.

While this stays weak, it’s nonetheless stronger than the 0.7% contraction beforehand forecast and stronger than the “near zero” development fee the IMF has pencilled in for Germany.

The information, contained within the IMF’s newest particular person evaluation of the UK economic system, its so-called Article IV report, will probably be welcomed by the chancellor, following a stream of detrimental forecasts from main establishments.

However, the Fund mentioned that the influence of the value of residing disaster will proceed to trigger ache throughout the economic system.

“Given transmission lags,” it mentioned, “sizeable rate [interest rate] hikes implemented since August are expected to have their peak impact on demand and inflation from the second half of 2023.”

It added that rates of interest – already at 4.5% having risen twelve successive occasions since late 2021 – must rise even additional.

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“Inflation is projected to return to the two% goal solely by mid-2025, six-months later than in employees’s April forecast, and dangers to this trajectory are tilted to the upside.

“Accordingly, some further monetary tightening will likely be needed, and rates may have to remain high for longer to bring down inflation more assuredly.”

Chancellor Jeremy Hunt mentioned: “Today’s IMF report shows a big upgrade to the UK’s growth forecast and credits our action to restore stability and tame inflation.

“It praises our childcare reforms, the Windsor Framework and enterprise funding incentives.

“If we stick to the plan, the IMF confirm our long-term growth prospects are stronger than in Germany, France and Italy… but the job is not done yet.”