The International Monetary Fund (IMF) no longer expects the United Kingdom’s economy to fall into a recession this year, but warns that the outlook remains subdued.
The international fund made a sharp u-turn on its forecast on the British economy, now expecting the gross domestic product to grow 0.4% in 2023, a significant shift from a forecast for a contraction of 0.3% it made in April, which was the weakest outlook among global major economies.
The IMF noted that the improvement in outlook is due to an unexpected resilience of demand, which was supported by faster than usual pay growth, higher government spending and improvement in business confidence. Meanwhile, the high energy costs crisis is easing, which gives another boost to the growth outlook.
Still, the fund noted that economic activity has slowed significantly from last year and inflation remains stubbornly high following the severe terms-of-trade shock due to Russia’s war in Ukraine and, to some extent, labour supply scarring from the pandemic.
The IMF forecast that inflation is likely to end the year around 5% and should return to its target of 2% by the middle of 2025. Meanwhile, economic growth for 2024 is expected at 1% and 2% for the next two years.