IMF says UK financial system ‘will not enter recession’ however will develop quicker than Germany
The International Monetary Fund (IMF) stated it’s not anticipating the UK to enter a recession this 12 months. In an replace to latest forecasts, it stated: “Buoyed by resilient demand in the context of declining energy prices, the UK economy is expected to avoid a recession and maintain positive growth in 2023.”
But it stated the outlook for development stays “subdued”, forecasting development of 0.4 per cent this 12 months.
The IMF stated the change displays “higher-than-expected resilience” in each demand and provide, referencing improved confidence in diminished post-Brexit uncertainty and declining power prices.
Chancellor Jeremy Hunt stated the IMF report reveals a “big upgrade” for the nation’s development prospects and credit the Government’s “action to restore stability and tame inflation”.
He stated: “It praises our childcare reforms, the Windsor Framework and business investment incentives.
“If we persist with the plan, the IMF confirms our long-term development prospects are stronger than in Germany, France and Italy – however the job isn’t achieved but.”
IMF economists made no change to the growth forecast for 2024, with the economy set to grow by one per cent next year.
They said: “Growth is projected to rise regularly to at least one % in 2024, as disinflation softens the hit to actual incomes, and to common about two per cent in 2025 and 2026, primarily on the again of a projected easing in financial and monetary circumstances.”
But the report does endorse the UK plugging skills shortages with immigrants, amid debate in Westminster about government policy ahead of the publication of new data this week on net migration.
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According to the IMF, the UK should look at “fine-tuning the immigration system to alleviate sectoral and expert labour shortages and improve labour market flexibility”.
The IMF also pointed positively to the UK and the EU finally reaching a deal on the Northern Ireland Protocol, while also noting the “extra measured strategy for retained EU legal guidelines” as something that will benefit business.
In the report the IMF expresses hope said that a UK return to the EU’s 100 billion euro Horizon programme, something sought by ministers, can boost small and medium-sized firms’ access to finance and research and design support.
The Article IV report, an assessment of the UK economy, also signals that the country could experience high interest rates for some time to come as the Bank of England battles inflation.
The Bank increased the base interest rate to 4.5 per cent earlier this month – the 12th rise in a row since rates started going up in December 2021.
In the IMF’s view “financial coverage might want to stay tight to maintain inflation expectations well-anchored and produce inflation again to focus on”.
Adding: “Inflation is projected to return to the 2 per cent goal solely by mid-2025, six months later than in employees’s April forecast, and dangers to this trajectory are tilted to the upside.”
It added that “additional financial tightening will seemingly be wanted, and charges could have to stay excessive for longer to carry down inflation extra assuredly”.