IMF boosts Britain’s growth forecasts

“It’s time to shake off some of the unjustified pessimism about our prospects,” declared a gleeful Jeremy Hunt today, after the IMF provided a rare bout of optimism on Britain’s economic outlook.

Arriving in London to deliver an annual economic health check, Kristalina Georgieva, the boss of the IMF – a UN agency often accused of being overly gloomy about the British economy – has bumped up the UK’s growth forecasts. 

This upgraded IMF projection of 0.7 per cent growth in 2024 – from its previous forecast of 0.5 per cent – followed by 1.5 per cent growth in 2025, will have been informed by the ONS recording Britain’s fastest rate of economic growth in two years at the start of this year. 

Between January and March, the economy grew by a larger-than-expected 0.6 per cent, meaning the UK has firmly emerged from the – albeit mild – recession it slipped into at the end of 2023. 

The IMF also noted that “CPI inflation has fallen faster than was envisaged last year,” adding that the Bank of England now has scope to cut interest rates up to three times this year.

While Hunt has hailed the IMF report as proof that “the UK economy really is turning a corner,” there are a couple of caveats. 

Firstly, these aforementioned growth forecasts don’t account for Britain’s significant population growth. When GDP is measured per head, it is still 0.7 per cent lower than a year ago, which helps to explain why many Brits won’t be feeling much better off despite this seemingly sunny economic news. 

Additionally, despite its broadly optimistic analysis, the IMF has firmly signalled its opposition to any more pre-election tax cuts, given the “significant pressures on public services” and the £30bn of either spending cuts or tax rises required to stabilise national debt.

As an improved growth picture emerges and inflation continues to fall, stabilising vast public sector debt is set to be the next big fiscal challenge.

In the UK, public sector debt now stands at just over 98 per cent of GDP – the highest level since the early 1960s.

As Ian Stewart wrote in Reaction recently, this is not an exclusively British challenge.  Levels of public sector indebtedness have also risen sharply in countries such as the US, Japan and France too. 

In America, public sector debt is forecast to rise from just under 100 per cent of GDP today to over 170 per cent in 30 years time. 

An ageing population, paired with increasing demands on defence in our dangerous geopolitical era, means spending pressures aren’t going away. Getting public sector debt down will be a long-term challenge. 

In the more immediate term, however, the latest IMF report does provide further space for optimism. 

We can expect growth to continue and inflation to fall further. And we can expect another burst of good news tommorrow, when a new set of inflation data lands. 

It’s expected to show a big drop, with the headline rate of inflation rate falling to the Bank’s long-awaited target of two per cent. 

Write to us with your comments to be considered for publication at letters@reaction.life