The International Monetary Fund (IMF) announced on Tuesday that it has upgraded its forecasts for the UK economy, stating that the country is no longer expected to fall into a recession in 2023. This update comes as a positive development, although the IMF cautioned that the outlook remains subdued.
According to the IMF, the gross domestic product (GDP) of the UK is projected to grow by 0.4% in 2023, a notable improvement from their previous forecast of a 0.3% contraction published in April. The revised outlook is attributed to several factors, including the resilience of demand, faster-than-usual wage growth, a decline in energy prices, improved business confidence, and the normalization of global supply chains.
The IMF also highlighted that declining energy prices and a widening economic slack are expected to contribute to a substantial reduction in inflation, which is projected to reach around 5% year-on-year by the end of 2023, gradually moving below the 2% target by mid-2025.
Looking ahead, the IMF foresees economic growth of 1% in 2024 and 2% in 2025 and 2026, before settling at a long-run rate of around 1.5%. However, the IMF emphasized that the persistence of inflation and unsustainable increases in wages pose the most significant threats to the UK's economic outlook. To address these risks, the IMF called for the Bank of England to maintain tight monetary policy while continuously reviewing the pace and magnitude of monetary tightening in light of elevated uncertainty.
The revised forecasts from the IMF provide a more positive picture for the UK economy, reflecting encouraging signs of resilience and improvement. However, continued vigilance and appropriate monetary measures will be crucial to ensure sustained growth and stability in the face of ongoing challenges and uncertainties.
