General view of the City of London, the capital’s financial district, in October.
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LONDON — The International Monetary Fund on Tuesday raised its 2024 growth outlook for the United Kingdom, saying lower interest rates and inflation would boost domestic demand.
The IMF now forecasts growth of 1.1% for the UK economy this year, up from 0.7% forecast in July. The agency also reiterated its forecast for an expansion of 1.5% in 2025.
UK inflation stood at 1.7% in September, down from 11.1% in October 2022. Falling services inflation rates and wage growth have led economists last week at predict a faster pace of decline in interest rates from the Bank of England, which predicts that the central bank will increase its key rate from 5.25% at the start of the year to 4.5% by the end of 2024.
Economic growth has been tepid so far this year, standing at 0.2% in August after stagnation in June and July.
The IMF’s brighter outlook comes as the country prepares for the center-left Labor Party to present its first budget in 14 years this month. Prime Minister Keir Starmer has warned the package will contain “difficult” decisions to close what he claims is a looming funding gap of £22 billion ($28.5 billion) – a figure disputed by his Conservative Party predecessors – after Labor pledged to slash net borrowing.
Although Starmer has ruled out increasing some key taxes, including income and corporation taxes, a broader set of tax rises is expected. Uncertainty surrounding the budget weighed on consumer confidence figures in August, although S&P Global UK Consumer Sentiment Index released Monday showed households were slightly more optimistic about their finances and more willing to make major purchases.
“It’s good that the IMF has revised upwards our growth forecasts for this year, but I know there is still work to be done,” said Finance Minister Rachel Reeves on Tuesday, who took office in July. The Labor Party is already committed to delivering the highest sustained growth in the G7 group of countries and to making higher growth the central policy objective.
On Tuesday, the IMF also lowered its 2024 growth forecast for the euro zone to 0.8% from 0.9% previously, predicting stagnation in Germany, the bloc’s largest economy. Analysts point to a host of challenges facing the German economy, including intense competition for the German economy. automobiles and broader manufacturing products, as well as higher energy prices and macroeconomic uncertainty weighing on its industrial production.
Among the other so-called “advanced” economies, the IMF forecasts economic expansion of 2.8% in the United States, 1.3% in Canada and only 0.3% in Japan, which suffered from the crisis. low demand this year in a context of high inflation.
