UK to avoid recession - IMF

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Sharecast News | 23 May, 2023

The International Monetary Fund said on Tuesday that it no longer expects the UK to fall into recession this year.

Publishing its latest update on the UK, the IMF said the economy had been "buoyed by resilient demand in the context of declining energy prices". It also noted that the financial system had weathered recent stresses in the global banking sector, prompted by the collapse earlier this year of Silicon Valley Bank.

As a result, it now expects the UK to avoid recession and to instead maintain "positive" growth in 2023.

It is forecasting growth of 0.4% this year, a 0.7 percentage point improvement on its last forecast in April, when it predicted 0.3% contraction.

Growth is then expected to reach 1% in 2024 and 2% in 2025 and 2026, primarily on the back of easing monetary and financial conditions.

It expects annual inflation to reach around 5% by the end of this year, on the back of declining energy prices, before dipping below the Bank of England’s 2% target by mid-2025. It called the UK’s current rate of inflation, 10.1%, "stubbornly" high, however.

The IMF also acknowledged that economic activity had slowed "significantly" from last year, and that the outlook for growth remained "subdued".

"Monetary policy will need to remain tight in order to keep inflation expectations well-anchored and bring inflation to target," it argued.

"Fiscal policy should continue to be aligned with monetary policy in the fight against inflation, while protecting key public services and the vulnerable."

It concluded: "Realising the UK’s full growth potential will require wide-ranging, further evidence-based reforms, including addressing the post-pandemic rise in labour inactivity, mainly due to long-term illness; removing impediments to business investment, especially policy and regulatory uncertainly; and enhancing public investment and transformational spending to boost productivity and accelerate the green transition."

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