IMF sticks with forecast for limited UK growth in 2023

The International Monetary Fund confirmed its latest forecast for British economic growth this year, saying cheaper energy, better relations with the European Union and calmer financial markets had improved the outlook since the start of 2023.

Britain’s gross domestic product is expected to grow 0.4 per cent this year and 1.0 per cent in 2024, in line with IMF staff forecasts made in May as part of an annual assessment of the country.

However, Tuesday’s outlook is an upward revision from the last time the IMF updated its global growth forecasts in April, when it predicted Britain’s economy would shrink 0.3 per cent this year.

The IMF said the revision arose from stronger household consumption and business investment as a result of “falling energy prices, lower post-Brexit uncertainty, and a resilient financial sector as the March global banking stress dissipates”.

Prime Minister Rishi Sunak has struck a less combative tone with the EU than his predecessors Liz Truss and Boris Johnson. The IMF praised an agreement in February on customs rules for Northern Ireland, a part of the United Kingdom which has an open border with Ireland, an EU member state.

Relative to the April forecasts, the IMF’s upward revision for Britain is the largest for any major advanced economy. However, in outright terms only Germany’s GDP – which is predicted to contract by 0.3 per cent – is forecast to fare worse.

The IMF forecasts the United States economy to expand by 1.8 per cent this year, while France is predicted to grow by 0.8 per cent.

The IMF’s outlook is also rosier than that of a Reuters poll of economists published on Tuesday. They expect British GDP growth of just 0.2 per cent this year, rising to 0.7 per cent in 2024.

Higher interest rates and falling domestic and foreign demand led to the weakest growth in six months for British companies in July, according to a business survey on Monday.