UK economy hitting soft landing, growth recovery expected in 2024: IMF

Growth was 0.6 per cent quarter on quarter (QoQ) in the first quarter (Q1) this year, marking a stronger-than-expected exit from the technical recession in the second half last year, which left full-year growth at 0.1 per cent.

Real gross domestic product (GDP) growth is now projected at 0.7 per cent this year—a slight upgrade from the 0.5 per cent from the April forecast—before rising to 1.5 per cent in 2025 as disinflation buoys real incomes and financial conditions ease, IMF said in a statement following the mission.

Longer-term growth prospects—unchanged from the April forecast—remain subdued due to weak labour productivity and somewhat higher than expected inactivity levels due to long term illness, only partly offset by higher migration numbers.

Disinflation has advanced faster than expected. Headline and core consumer price index (CPI)-based inflation stood at 3.2 per cent and 4.2 per cent year on year (YoY) respectively in March this year, having declined rapidly due to stronger energy and imported goods price deflation, and the impact of restrictive monetary policy, the IMF said.

Some upward pressure on inflation is expected in the second half of the year as base effects from lower energy prices wane, but a durable return to the Bank of England’s 2-per cent target is forecast by early 2025.

Risks to growth and inflation are balanced. Inflation could be lower (and growth higher) if favorable second-round effects from falling energy prices are stronger and permit earlier and larger rate cuts.

Inflation and growth could both be lower if domestic demand does not pick up as expected and the savings rate remains elevated.

The United Kingdom should continue its cautious approach to industrial policy, while maintaining its open trade orientation, the IMF suggested.

Fibre2Fashion News Desk (DS)