Declining energy prices is helping support domestic demand in Britain, prompting the IMF upgrade its forecast from a contraction to expansion
London (AFP) - The IMF on Tuesday delivered a major U-turn on its forecast for the UK economy, saying it expected growth this year, just one month after predicting a contraction.
Britain’s economy is now predicted to expand by 0.4 percent, the International Monetary Fund said in its latest outlook document which partly cited weaker energy prices.
The institution ripped up its previous forecast in April of a 0.3-percent contraction.
But there had still been a “significant” slowdown from 2022, when the economy grew 4.1 percent despite sky-high inflation and energy bills owing to the Ukraine war.
“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,” it added in Tuesday’s statement.
“Still, economic activity has slowed significantly from last year and inflation remains stubbornly high following the severe terms-of-trade shock due to Russia’s war in Ukraine and, to some extent, labour supply scarring from the pandemic.”
It also cautioned that this year’s growth outlook remains “subdued”.
The IMF said the 2023 upgrade reflected “higher-than-expected resilience” in both demand and supply, alongside improved confidence in reduced post-Brexit uncertainty as well as lower energy costs.
Britain’s Conservative government welcomed the news, with finance minister Jeremy Hunt declaring that the “big upgrade” credits the government’s “action to restore stability and tame inflation”.
He added: “If we stick to the plan, the IMF confirm our long-term growth prospects are stronger than in Germany, France and Italy…but the job is not done yet.”
GDP is expected to grow by 1.0 percent in 2024, unchanged from the IMF’s prior guidance.
The news comes after the Bank of England forecast earlier this month that the UK economy would avoid recession this year despite the country’s annual inflation stuck above 10 percent.
Britain is due to publish its official April inflation data on Wednesday.