Rachel Reeves gets a boost as the UK’s growth forecast is upgraded

The International Monetary Fund upgraded its growth forecasts for the UK’s economy in this year. This is a major boost to the Labour Government, just weeks after the General Election.

The Washington-based fund stated that the UK is on track to grow by 0.7 percent of GDP this coming year. This was up from the estimate of 0.5 percent made in April.

Official figures show that the economic recovery has been more rapid than expected, and is now at its fastest rate in two years.

According to the IMF, the UK will grow faster this year than Germany (0.2% predicted) and at the exact same rate as Italy and Japan.

Some private sector projections suggest that growth could reach 1% to 1.3 % this year. The IMF’s 2025 growth projection remained at 1.5 percent.

Rachel Reeves said that while it is good to see the IMF forecasting a growth pick-up this time around, I have no illusions about the size of the challenges facing the economy or the legacy this new government will inherit.

“We are taking the hard decisions now to rebuild Britain, and improve the lives of all citizens.”

The recovery in Britain has been fueled by a rise in disposable incomes for consumers, as inflation has dropped to 2% and wage growth has risen to 6%. The business climate has also improved in this year. However, the interest rate is still at 5.25 percent.

The IMF also warned that the persistent nature of inflation, in wealthy countries, “complicated monetary policy normalisation”. The IMF’s economists pointed out that the service sector of advanced economies including the UK, has sticky inflation.

“Upside risks to inflation have thus increased, raising the prospect of higher-for-even-longer interest rates, in the context of escalating trade tensions and increased policy uncertainty,” the IMF said. In some advanced economies, particularly the United States, disinflation progress has slowed.

In an updated version of its World Economic Outlook, the IMF kept its global growth forecast at 3.2% and increased it by 0.1 percentage points, to reach 3.3 percent.

The fund stated that the US economy is on track to grow at a slower rate than expected this year, at 2.6% instead of 2.7%, and Japan’s GDP growth projection was lowered from 0.9% to 0.7%. France’s GDP is expected to increase by 0.9 percent, compared with the previous estimate of 0.7 percent.

Spain was the most advanced economy to receive a boost this year, going from 1.9 percent to 2.4 percent.

China and India were both expected to grow at a rate of 5% and 7% respectively.

Pierre-Olivier Gourinchas is the IMF chief economist. He said that “Asia’s emerging market economies are the main engines of the global economy.” The growth in India and China has been revised upwards, and now accounts for nearly half of the global growth.

Gourinchas called on the richer countries to do more in order to restore their public finances following years of emergency measures during the pandemic, and the energy crisis 2022. He said that the US debt crisis was a threat to both “the domestic economy and the global economy”.

He said that the increasing US dependence on short-term financing is worrying. It wouldn’t take much to make debt trajectory less comfortable, given the higher debt, slower economic growth, and higher deficits.

Gourinchas claimed that the UK was experiencing “stickiness” of prices, with services inflation running at a rate of 5,9 percent annually.

He said that it was still too early to evaluate Labour’s economic plans, but that “some of [the policies] were consistent with our recent Article IV [assessment] of the UK economy.”