IMF raises forecast for UK economy to 1.1% growth

The International Monetary Fund has given the UK one of the largest growth upgrades of any advanced country this year. This is a great boost for chancellor Rachel Reeves as she prepares to present her first Budget.

The Washington-based forecaster predicted that the British economy will grow by 1,1% this year. This is a substantial upgrade over the 0.7 percent growth forecast in July and is the second largest upgrade after Spain. The fund’s forecast for the UK’s GDP is unchanged, at 1.5 percent next year.

IMF stated that the UK would grow due to falling inflation, and monetary eases which would “stimulate internal demand”. According to market forecasts, the Bank of England is expected to cut interest rates again next month . The forecast will give Rachel Reeves a boost before she presents her first budget next week. Labour is banking on raising the UK’s growth rate over time to reduce debt and finance public investments.

The Labour Party has set a target to increase the UK’s medium-term growth rate in line with the G7 advanced economies. According to IMF forecasts, Britain will be the third-fastest in the G7 group this year behind the US (2.8%) and Canada (1.3%).

IMF’s global growth projection was unchanged at 3.2% this year and next, but China’s economy is expected to slow from 5.2% in 2023 to 4.8 percent this year, then 4.5 percent in 2025. The IMF’s forecast for global growth was unchanged, at 3.2% this year and next. China’s economy is expected to slow down from 5.2% in 2023 to 4.8% this year, and then to 4.5 percent in 2025.

Pierre Olivier Gourinchas is the chief economist of the fund. He said that as inflation falls around the globe, rich countries should cut back spending and borrow “without delay” in order to avoid a resurgence of prices.

Gourinchas stated that after years of lax fiscal policy, it was time to stabilize debt dynamics and build much needed fiscal buffers. The more credible and disciplined a fiscal adjustment is, the more the monetary policy will be able to play a supportive role in easing policy rates whilst keeping inflation under control.

The IMF highlighted that the US and China are the two world’s largest economies whose “fiscal policies do not stabilise the debt dynamics”. The IMF warned two weeks before US Presidential Election that the US fiscal debt would grow to 143 percent of GDP in the next five year.

Gourinchas stated that other economies who have pledged to tighten their belts are showing alarming signs of “fiscal slippingpage”, as governments struggle to achieve difficult fiscal consolidation. To fill the fiscal “blackhole”, Reeves must find £40 billion in revenue by combining higher taxes with lower spending.

Gourinchas claimed that the fight against high inflation has “largely” been won around the globe, and urged central banks to implement gradual monetary ease. IMF predicted that headline inflation in 2024 would be 2.6% and then fall to 2.0% next year. This is just a little above the Bank of England target of 2%.

Gourinchas stated that “the decline in inflation without global recession is an important achievement.” He also warned of the risk to global growth from the recent spike in the oil price, the lower migration, and the increase in trade tariffs.

Reeves stated: “It is welcome that the IMF has upgraded our growth projection for this year but I know that there is still more work to be done.” The budget will focus on fixing the foundations for change so that we can protect workers, fix the NHS, and rebuild Britain.