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On Tuesday, the International Monetary Fund revised its forecasts for the British economy, indicating that it “expects growth of 0.4% this year, a month after it expected a contraction.”
The fund added that it “expects the British economy to avoid recession in light of the steadfast demand and decline in energy prices, after it expected in April a contraction of 0.3%.”
“The improved outlook reflects the unexpected resilience of demand, helped in part by faster-than-usual wage growth, higher government spending and improved business confidence,” the fund said.
And the Fund considered that “growth prospects, while improving somewhat in recent months, remain weak.”
“Economic activity has slowed significantly from last year and inflation remains stubbornly high following the severe terms-of-trade shock caused by the war in Ukraine and, to some extent, labor supply scars from the pandemic,” he added.
growth potential
British inflation was likely to fall to around 5% by the end of this year from more than 10% in March, and should return to its target of 2% by mid-2025 broadly, in line with earlier forecasts by the Bank of England. This month.
The economy was likely to grow by 1% in 2024 and 2% in the following two years, before returning to a long-term growth rate of around 1.5%, according to IMF projections.
The fund added that “UK’s growth potential can be improved through measures to address the impact of long-term illness on the workforce and reduce the policy and regulatory uncertainty that has hurt business investment.”
“The recently amended agreement with the European Union on post-Brexit trade that includes Northern Ireland and a more measured approach to scrapping EU law should encourage business investment,” he said.
Continuing inflation
The IMF considered that “the persistence of inflation and the accompanying unsustainable wage increases were the biggest threats in the near term to Britain’s economic prospects, and that the Bank of England must ensure that monetary policy remains tight.”
“Nevertheless, the growing uncertainty about the macroeconomic outlook and the persistence of inflation warrants continued review of the pace and magnitude of monetary tightening,” the Fund added.
The Bank of England has raised borrowing costs at 12 consecutive meetings and raised interest rates to 4.5% this month and financial markets see them peaking at 5% later this year. (agencies)
