Contrary to previous forecasts, the IMF now expects UK to avoid recession in 2023
The International Monetary Fund (IMF) has adjusted its outlook on the UK’s economy, predicting a growth of 0.4% in 2023, a significant improvement on the 0.3% contraction initially expected. In the IMF’s own words, “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.”
This shift in projection is credited to the “higher-than-expected resilience” in demand and supply, reflecting the increased confidence post-Brexit and the impact of falling energy prices. However, the IMF has cautioned that growth remains “subdued”.
“It praises our childcare reforms, the Windsor Framework and business investment incentives. If we stick to the plan, the IMF confirms our long-term growth prospects are stronger than in Germany, France and Italy – but the job is not done yet.”
The IMF report is seen as a “big upgrade” by Chancellor Jeremy Hunt, who highlighted the Government’s actions in fostering stability and keeping inflation in check. The Chancellor also drew attention to the praise for childcare reforms, the Windsor Framework, and business investment incentives.
Despite the changes in this year’s forecast, the IMF has not adjusted its growth projection for 2024, expecting the UK economy to expand by one percent next year. This growth is expected to rise gradually, averaging about two percent in 2025 and 2026.
In addition to economic forecasts, the IMF report also touched on other significant issues such as immigration, Brexit, and inflation. It endorses the idea of the UK addressing skill shortages by refining its immigration system. Furthermore, the IMF commended the UK and EU for reaching a deal on the Northern Ireland Protocol and acknowledged the potential benefits of a “more measured approach for retained EU laws”.
The IMF’s stance on inflation is clear: “monetary policy will need to remain tight to keep inflation expectations well-anchored and bring inflation back to target”. This follows the Bank of England’s decision to raise the base interest rate to 4.5%, the twelfth increase since December 2021. The IMF also suggested that the UK may experience high interest rates for some time.