The International Monetary Fund (IMF) today upgraded its forecasts for the UK economy, saying it is recovering “quicker than expected” but warned there are “tough choices” on the horizon to stabilize public debt.
“The UK economy is heading for a soft landing after a mild technical recession in 2023 as growth recovers faster than expected,” the IMF said in a statement.
The UK’s gross domestic product (GDP) is expected to grow by 0.7 per cent overall in 2024, against a 0.5 per cent estimate in forecasts published in April.
According to official UK data released in early May, the country’s GDP growth was 0.6 percent in the first three months of the year.
After rising to more than 11 percent at the end of 2022, inflation in the United Kingdom “declined more quickly than expected last year and is expected to reach the Bank of England’s 2 percent target by early 2025,” the IMF said.
The IMF predicts that GDP will increase by 1.5 percent in 2025 as inflation falls and purchasing power and financial conditions become more flexible.
Months ahead of national elections where his party is expected to lose to opposition Labour, Conservative Finance Minister Jeremy Hunt today welcomed a report that “clearly shows (…) that the British economy has recorded significant improvement”. .
However, the IMF warned that “difficult choices will need to be made in the medium term to stabilize public debt, given the significant pressures on public services and critical investment needs”.
In particular, the Fund recommended increasing tax revenue, controlling expenditure and improving the efficiency of public services.
Hunt, who has cut social security contributions twice in recent months, promised tax cuts on Friday if the Conservatives are in power in the next parliament.
Today, the IMF advises against any “further tax cuts unless they credibly stimulate growth and are adequately offset by careful deficit reduction measures.”
The international agency advises “ambitious structural reforms”, while the UK’s long-term prospects continue to be penalized by “low labor productivity and slightly higher than expected levels of inactivity due to chronic illness”.
British officials must “maintain the course on climate policy,” according to the IMF, which insists that currently planned policies and spending will not be enough to meet the country’s objectives.
Photo: Bruno Philippe Pires
