Chancellor Jeremy Hunt credits government actions for improved forecasts as UK avoids recession
The Bank of England’s recent decision to increase the base interest rate to 4.5% marks the 12th consecutive rate hike since December 2021, a move aimed at curbing inflation. The International Monetary Fund (IMF) has indicated that monetary policy must stay tight to keep inflation expectations in check and ensure inflation returns to the 2% target by mid-2025—six months later than previously forecasted. The IMF further suggested that additional tightening of monetary policy may be necessary, and rates could remain elevated for an extended period to bring inflation down more definitively.The International Monetary Fund (IMF) has revised its forecast for the UK economy, stating that the country is set to avoid a recession in 2023. Previously forecasting a 0.3% contraction, the IMF now predicts a growth of 0.4% for the year, thanks to resilient demand and declining energy prices. This improvement reflects stronger-than-expected resilience in both demand and supply, aided by a reduction in post-Brexit uncertainty and lower energy costs.
Chancellor Jeremy Hunt praised the upgraded forecast, highlighting government measures to stabilize the economy and tackle inflation. He pointed to key reforms, such as changes to childcare, the Windsor Framework, and incentives for business investment, as critical to restoring confidence. The IMF also highlighted the UK’s long-term growth prospects, forecasting stronger growth than Germany, France, and Italy if the government maintains its current strategy.
However, the IMF warned that while the outlook has improved, growth remains subdued, with projections for 2024 at just 1% and a gradual rise to 2% by 2025 and 2026. The IMF also recommended the UK fine-tune its immigration system to address sectoral and skills shortages, a key issue amidst ongoing discussions about net migration.
On inflation, the IMF anticipates that high interest rates will persist as the Bank of England continues its efforts to rein in inflation, which is projected to return to the 2% target by mid-2025.
