The International Monetary Fund (IMF) has admitted it was wrong to predict a UK recession this year as it upgraded its UK growth forecasts for the second time in as many months.
Britain is now expected to grow 0.4pc this year, the IMF said. This is in contrast to a 0.3pc contraction projected just last month, which itself was an upgrade from an even more dour forecast made in the wake of October’s mini-budget.
The latest upgrade means the UK is no longer predicted to be the worst-performing major economy this year, although the IMF warned that the country’s long-term growth prospects were significantly below pre-financial crisis levels.
The Fund said the near-term upgrade was driven by “higher-than-expected resilience” in demand and supply, amid a stronger jobs market and falling energy costs.
The Fund said in its annual evaluation of the UK economy: “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.”
Jeremy Hunt described the forecast as a “big upgrade”, though the Chancellor suggested he would stick to his plan of tax rises to meet a goal to halve inflation this year.
The Fund said stronger growth meant the Bank of England may have to keep raising interest rates from the current 4.5pc level. Threadneedle Street has already lifted rates a dozen times in a bid to get a grip on stubbornly high inflation, which stood at 10.1pc in March.
Official figures on Wednesday are expected to show inflation eased to around 8.4pc in April.
However, the Fund warned against any “premature celebrations” in the fight against inflation. The IMF said inflation was likely to return to the Bank’s 2pc target “only by mid-2025”, as it predicted two more years of high inflation.
The Fund said: “Staff’s analysis of historical inflation shocks indicates that high inflation is often persistent, especially in the aftermath of large terms-of-trade shocks… some further monetary tightening may be needed”.
The IMF also called on policymakers to abolish stamp duty, which it said was stopping people from moving homes and switching jobs.
The Fund doubled-down on a recommendation for the Tories to scrap the triple-lock to protect the NHS. It warned that the triple-lock on pensions was not compatible with a sustainable NHS.
The Fund said the triple lock on pensions should be replaced by a simple link to prices. The new annual state pension is now £10,000 a year after it was uplifted by 10.1pc because of soaring inflation.
