The International Monetary Fund (IMF) has released revised economic forecasts for the UK, saying it has successfully averted a previously projected recession for 2023.
The International Monetary Fund attributes this positive development to the effective measures taken by the British government to stabilize the economy and combat inflation. However, the organization advises caution and urges the government to oppose tax cuts before the elections.
Britain out of recession
The International Monetary Fund had previously forecast that the UK economy would contract by 0.3% in 2023, the weakest forecast of any major economy. However, the new forecasts expect UK GDP to grow by 0.4% for the year, outperforming some rich economies including Germany.
The IMF believes this change is primarily due to a strong recovery in demand, driven by faster-than-expected wage growth, increased government spending, and improved business sentiment.
According to the International Monetary Fund, factors such as lower energy costs after sharp increases last year and the regulation of global supply chains also contributed to the economic recovery.
“The UK authorities have shown responsible and firm leadership in recent months, prioritizing the fight against inflation as it should be,” said the Managing Director of the International Monetary Fund, Kristalina Georgieva, at a recent press conference.
The IMF commends the current government of Prime Minister Rishi Sunak and Chancellor of the Exchequer Jeremy Hunt for prioritizing fiscal caution.
Hunt urges resisting the temptation to reduce the tax burden for short-term policy reasons, arguing that while tax cuts can stimulate investment, they should be implemented when economically feasible.
“The current timing is neither affordable nor desirable for tax cuts,” Georgieva warned, acknowledging potential pressure from the Conservative Party, which currently trails Labor in opinion polls, to push through tax cuts ahead of the 2024 election.
Predict the future
The International Monetary Fund expects UK inflation, which rose to more than 10% in March, to fall to around 5% by the end of the year, in line with the Bank of England’s previous forecast.
The 2 percent mark should be reached again by mid-2025. The UK economy is also expected to maintain steady growth, with a 1% increase in 2024 and a 2% increase over the next two years, eventually stabilizing at a long-term growth rate of around 1.5%.
The International Monetary Fund has also highlighted the potential to boost Britain’s economic growth through strategies to manage the impact of chronic disease on the workforce and reduce political and regulatory uncertainty to encourage business investment.
Despite the generally positive outlook, the International Monetary Fund warned of continued inflation and possible uncontrollable wage increases, citing these as major immediate risks to the UK’s economic outlook.
The International Monetary Fund has advised the Bank of England to ensure that monetary policy remains tight to counter these threats.
The International Monetary Fund indicated that “the continuing uncertainty about the macroeconomic climate and the persistence of inflation calls for a continuous review of the pace and extent of monetary tightening.”
In response to those warnings, the Bank of England has steadily raised the cost of borrowing for 12 consecutive sessions, and raised interest rates to 4.5% this month, with financial markets expecting them to peak at 5% later this year.
Overall, the reassessment by the IMF brings welcome relief to the UK and signals a shift from recession to growth in the economy.
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