LONDON -The International Monetary Fund has revised its forecast for Britain's economy, no longer anticipating a recession this year. Praising the measures implemented by the British government to stabilize the economy and combat inflation, the IMF now projects a growth of 0.4% in British gross domestic product for 2023. This upgrade comes after previous forecasts in April predicted a contraction of 0.3%, representing the weakest outlook among major economies.

Despite expressing cautiousness regarding the UK's economic outlook, the International Monetary Fund (IMF) acknowledged that the government is heading in the right direction, offering a contrast to its previous concerns about former Prime Minister Liz Truss's policy direction. IMF Managing Director Kristalina Georgieva highlighted the decisive and responsible measures taken by UK authorities in recent months, particularly emphasizing the government's prioritization of the fight against inflation.

Improved economic prospects in the UK can be attributed to factors such as resilient demand, accelerated wage growth, increased government spending, improved business confidence, and the stabilization of energy costs and global supply chains, according to the IMF.

Despite these positive developments, the IMF noted that the growth outlook remains modest, with economic activity slowing compared to the previous year. Persistent high inflation resulting from Russia's conflict in Ukraine and the lingering effects of the pandemic on labor supply were cited as challenges.

However, the IMF expects British inflation to decline from its peak earlier this year and return to the Bank of England's target of 2% by mid-2025.
According to the IMF's forecast, the UK economy is expected to achieve a growth rate of 1% in 2024, followed by 2% growth in the subsequent two years.

The long-term growth rate is projected to stabilize at around 1.5%. To enhance the country's growth potential, the IMF suggests addressing the impact of long-term illness on the labor force and reducing policy and regulatory uncertainties that have negatively affected business investments.
The recently revised trade agreement with the European Union concerning Northern Ireland and a more measured approach to EU law removal are expected to promote business investment. The IMF highlights that persistent inflation and unsustainable wage increases pose significant near-term risks to the UK's economic outlook, urging the Bank of England (BoE) to maintain tight monetary policy.

However, given the heightened uncertainty surrounding the macroeconomic landscape and inflation persistence, the IMF advises continuous evaluation of the pace and magnitude of monetary tightening. The BoE has already raised borrowing costs in consecutive meetings, bringing rates to 4.5% this month, with financial markets anticipating a peak of 5% later this year.