Boost for Britain as IMF upgrades growth forecast

The UK has received one of the biggest growth upgrades in the advanced world this year from the International Monetary Fund in a boost to chancellor Rachel Reeves ahead of her first Budget next week.
The Washington-based forecaster said the British economy would grow by 1.1 per cent this year, a significant upgrade from the 0.7 per cent growth forecast made in July, and the second highest upgrade after Spain. The UK’s gross domestic product is expected to expand by 1.5 per cent next year, the fund said, unchanged from its previous forecast.
The IMF said the UK’s growth would be powered by falling inflation and monetary easing that would “stimulate domestic demand”.
The Bank of England cut interest rates in August and is on course to do so again next month, according to market projections.
The forecast is a boost to Rachel Reeves before her maiden budget next week, with Labour banking on lifting the UK’s long-term growth rate to bring down debt levels and finance public investment.
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Labour has targeted raising the UK’s growth rate to the highest medium-term expansion in the G7 group of advanced economies. Britain is on course to be the third fastest in the group this year, behind the US (2.8 per cent) and Canada (1.3 per cent), according to IMF projections.
The 1.1 per cent forecast is now the same as France, while Germany will be the weakest big world economy, with growth stagnant in 2024 at 0 per cent, the IMF said. The fund’s global growth projection was unchanged at 3.2 per cent this year and next, while China’s economy was expected to slow from 5.2 per cent in 2023 to 4.8 per cent this year and 4.5 per cent in 2025.
Pierre Olivier-Gourinchas, the fund’s chief economist, said that with inflation falling across the world, it was time for rich countries to cut back on spending and borrowing “without delay” to prevent a re-acceleration of prices.
“After years of loose fiscal policy in many countries, it is now time to stabilise debt dynamics and rebuild much-needed fiscal buffers,” Gourinchas said. “The more credible and disciplined the fiscal adjustment, the more monetary policy can play a supporting role by easing policy rates while keeping inflation in check.”
The IMF highlighted the US and China, the world’s two largest economies, whose “fiscal plans do not stabilise debt dynamics”. Two weeks before the US presidential election, the fund warned the US fiscal deficit was on course to fall marginally to 6.1 per cent by 2029 and public debt was on course to grow to 143 per cent of GDP over the next five years.
Gourinchas said other economies that have promised to tighten their belts were showing worrying signs of “fiscal slippage”, with governments unable to carry out difficult fiscal consolidation.
Reeves needs to find £40 billion of revenue through a combination of higher taxes and lower spending to fill a fiscal “black hole”, while meeting a broader target to bring down the country’s debt ratio.
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Gourinchas said the battle with high inflation had “largely been won” around the world, and called on central banks to carry out gradual monetary easing.
The IMF said headline consumer price inflation would average 2.6 per cent in 2024 and fall to 2.1 per cent next year, just above the Bank of England’s 2 per cent target.
“The decline in inflation without a global recession is a major achievement,” Gourinchas said, with warnings that the recent spike in oil prices, lower migration and the rise in trade tariffs also risked hurting global growth.
Reeves said: “It’s welcome that the IMF have upgraded our growth forecast for this year, but I know there is more work to do. That is why the budget next week will be about fixing the foundations to deliver change, so we can protect working people, fix the NHS and rebuild Britain.”